tv U.S. Senate CSPAN March 5, 2012 8:30am-12:00pm EST
entrepreneur kathy ireland. after that, live remarks by the head of the transportation security administration, john pistole, on the future of aviation security. and later the senate's back at 2 p.m. eastern for general speeches. no roll call votes are expected. >> the u.s./israel policy conference continues tonight. among the speakers, benjamin netanyahu, house democratic leader nancy pelosi, and senate republican leader mitch mcconnell. it's hosted by the american/israel public affairs committee, and you can see our live coverage beginning at 9:30 p.m. eastern right here on c-span2. >> this crazy world of ours we have atom bombs. the question is not how to use them, the question is how do you restrain yourself from using them. that's particularly when your commander -- when you're commander in chief.
any fool can get this country into trouble. it takes a wise man to get it out. >> as candidates campaign for president this year, we look back at 14 men who ran for the office and lost. go to our web site, c-span.org/thecontenders, to see video of the contenders who had a lasting impact on american politics. >> shouldn't your president have the highest moral and ethical standards and be an example to our children and young people in this country? ask yourself that question, please. shouldn't his life make him a role model for your future children? shouldn't anyone you elect to this office always keep his promises? >> c-span.org/thecontenders. >> now, the chairman of the commodities futures trading commission, gary gensler. he recently compared his agency's new regulatory role to having a cop on the beat. he talks about new consumer protections at this forum hosted by george washington university. it's about 45 minutes.
[inaudible conversations] >> welcome, everyone. welcome to george washington university law school and our program at the center for law, economics and finance. where we've been discussing financial reform. my name is lawrence cunningham, i'm a member of the faculty here, and it's a great pleasure for me to introduce and welcome gary gensler, currently the chairman of the commodities futures and trading commission. an appointment he received and took in may of 2009 at a very difficult time in our country's financial history. to undertake a very difficult job. i think the country is fortunate to have had that appointment, and we're lucky that he is in that job today.
his experience will speak to why we're lucky. he earned a bachelor's of science degree from the university of pennsylvania's wharton school summa cum laude back in 1978, and the next year earned a master's of business administration from penn. he spent the next 18 years working at goldman sachs. the investment banking firm in new york where he became a partner and, ultimately, served as the co-head of finance. then washington beckoned in 1997 when he took up a position at the u.s. department of the treasury. first serbing as assistant -- serving as assistant secretary of financial markets, and after that serving as undersecretary of domestic finance. in those important positions, he worked very closely on financial policy matters with secretaries of the treasury robert rubin and then lawrence summers. his distinguished service at the
department of the treasury earned his receipt of the alexander hamilton award, the highest honor the department gives. capitol hill beckoned next in our last financial crisis when senator paul sarbanes, the head of the senate banking committee, recruited mr. gensler to help craft the financial reform legislation of that period this 2002 called -- in 2002 called the sarbanes-oxley act. in between this busy time, mr. gensler managed to co-author a fine book targeted to ordinary americans about investing and finance called "the mutual fund trap: a guide to ordinary americans in the sometimes complex world of investment." it's a critique of the mutual fund industry and some of it practices and an endorsement for
an approach to investing called indexing. i won't elaborate on the book here, but you can buy the book for yourselves at your favorite bookseller. [laughter] but we have delighted and honored -- we are flighted and honored to have chairman gensler with us today to talk about financial reform and what it means. so thanks very much, chairman gensler. [applause] >> thank you very much for -- let's just make sure we got that. thank you very much for that very kind introduction, the mention of the book. i'm wondering whether -- i don't think it's in any bookstores anymore. [laughter] it's kind of a -- >> [inaudible] >> amazon, yeah. it was kind of a neat experience. my kids will read it one day. but good morning. i'd like to thank all of you for allowing me to speak here. i think it's the third time that i've had the honor to come back and speak to this group of, mix
of students and academics and practitioners. and i've always found the experience a good one. um, and i'm pleased to really discuss why financial reform matters. what it means for investors, consumers and businesses in america. but let me start by saying what the commodity futures trading commission means for investors, consumers and businesses in america because maybe not all of you are aware of who we are and be why it even matters. at it core the cftc's mission is to insure the integrity and transparency of something called the ce livetives marketplace -- derivatives marketplace or the futures market and now the swaps market and along with our big sister, the securities and exchange commission, we have two market regulators in this country and have since the 1930s since president roosevelt asked for two regulators. so if somebody's wondering why, it's president roosevelt in the 1930s and that crisis.
and each part of the economy relies on a well-functioning derivatives marketplace. futures and swaps markets provide for a way for farmers and ranchers initially, but later producers and manufacturers, retailers, service companies to lock in a price or a rate and manage their risk. that's, at its core, what these markets are about; locking in a price of corn or wheat at harvest time initially, but later locking in a rate like an interest rate or currency rate or something in the oil markets. and so these markets are critical for commercial companies and the real economy, and let me mention the real economy is that part that employs 94% of the private sector jobs in america. that's the nonfinancial side. it's critical for that part of the market so that they can focus on what they do best. what do they do best? they service customers, they produce products, they innovate, they invest in our economy and our country, but they want to lower their risk and lock in the price of risk of something.
that's what the cftc's mission and why it matters. the benefits go beyond the companies and the real economies, it also goes to the americans whose retirement security and pension funds or mutual funds benefit. it goes to americans depending upon community banks and insurance companies because these pension funds and mutual funds and insurance companies, community banks all, also, want to lock in a rate of interest or currency or commodity and, um, they benefit from transparent marketplaces as back in the 1930s president roosevelt asked for transparent marketplaces for something that most americans didn't know about, wheat futures and corn futures. combined these markets are very, very low arch. size, $340 trillion notional amount. that represents $22 of hedging or, yes, maybe speculating in
the futures and p swaps marketplace for every dollar that coarses through our economy. let me repeat it. that's $22 dollars of swaps for every dollar of goods and services that runs through our economy. now, by any measure, that's pretty darn meaningful for investors, consumers and businesses in america, and that's why it matters to get financial reform right as well. futures and swaps markets touch nearly every aspect of the economy. the food we eat, the price at the pump to our mortgages and credit cards to our retirement save offings. and given how important these markets are, it's, of course, essential that they be transparent, competitive and free of fraud and manipulation. the cftc has historically just been charged to oversee the futures marketplace. that's since the 1930s. took about 60 years to get that through congress. from the time of the invention of the futures markets. the swaps marketplace invented in 1981 took about 30 years to get regulated.
it's actually progress. in a historical context. [laughter] but in 2008 the unregulated swaps market helped concentrate risk in the financial system, and as we all know, that risk spilled out to the real economy. the real economy that employs 94% of the private sector jobs. it affected every business across america and every consumer across america, and anyone who doubts that swaps played a role, may i just remind you of aig. and every one of us in this room got hurt by that crisis. the crisis led to 8 million americans losing their jobs, millions of families losing their homes, thousands of small business withs shuttering and three years later we still face a challenging economy. and in 2010 congress responded along with the president, the hard work of many, many people passing the dodd-frank act which expanded our mission at the cftc now to also oversee the u.s.
swaps marketplace, a marketplace that is eight times the size and far more complex of a market that we used to oversee. three key goals, to keep them simple, three key goals in the parts we oversee in the dodd-frank act. one, bring transparency and competition to the p swaps market. so, one, transparency. two, protect against wall street risks spreading out again over the rest of the economy. so lower risk, number two. and three, enhance market integrity, so transparency, lower risk, market integrity. on transparency why does that really matter? transparency and competition in the swaps markets lowers costs for investors. it does in every market. transparency and competition, it could be in the health markets in the auto markets, the oil markets, it lowers some of the costs to the people using the product. and at nearly $300 trillion notional side, the u.s. swaps market, though, remains the
largest dark pool in our financial markets. i see harvey goldman here. this dwarfs the dark poles in the securities markets with all respect, my friend. the dodd-frank act squarely addresses this by shifting some of the information advantage from wall street to the rest of the economy, and it does this in, um, in two fundamental -- in a number of fundamental ways, actually. but it provides the public information of the pricing and volume of every transaction once it's completed, so-called posttransparency. it does so also by providing all market participants the opportunity to come together to transact on transparent and open and competitive trading platforms. so-called pretrade transparency. so after the transaction and before the transaction. and these trading platforms will mean that end users, investors and speculator benefit from seeing available bids and offers and get the provision of
liquidity. the law even goes further by providing the mix with daily valuation -- the public with daily valuation over the life of cleared swaps, in addition it provides greater information to the regulators so one can have an effective cop on the beat. because rules do actually benefit if they're enforced. is the cftc has completed seven of nine key reforms to bring transparency, the commission already has begun receiving position information from large traders in the physical commodity markets including the oil and energy markets, um, to bring light and shine on this marketplace for the first time. in addition, um, starting this july the public will start to get reporting on every transaction or nearly every transaction in the market and what's called realtime public reporting. not all that different from what's over in the corporate bond marketplace in something called the trace reporting. by contrast prior to 2008 none
of this. none of this was in the largest dark pool in the market. and now republican regulators will start -- the public and regulators will start to get information. financial market also means lowering risk that wall street poses to investors, consumers and businesses across america. dodd-frank reforms does this in three ways. so this is the three ways to lower risk. one, through bringing transparency, as i just discussed. because transparency in and of itself helps lower risk. two, by mandating that the standard transactions, the standard swap withs be brought into financial entities called clearinghouses. and three, by actually regulating the dealers in this space because they were not regulated before under what was an assumption that if they were banks, they were kind of regulated anyway. that assumption didn't work so well. clearinghouses have lowered risk in the futures market by standing between buyers and sellers of of these contracts and guaranteeing each party
against the failure of the other party. and though clearinghouses clearly have to be overseen for comprehensive risk management, they've worked to lower risk for a long, long time. um, in fact, in contrast to this past century there's been many, many bank failures. we've lived through the great depression and the 2008 financial crisis. though clearinghouses have to be managed well and have vigorous oversight, they're far better than the alternative of leaving this risk in the banks. dodd-frank financial reform also mandates that swaps between financial entities or 90% of the financial transactions could possibly move into the clearinghouses. let me repeat that. so if there's a swap between two financial entities and it's standard enough, it's supposed to be moved to this
clearinghouse. now, on the other hand, nonfinancial companies that represent approximately 10% of the market congress mandated would have a choice. they don't have to use the clearinghouses. the thought was really that those that only are about 9 or 10% of the market and are the furthest away from this interconnected financial system, they get to choose. and they also represent 94% of the jobs. um, it's important to note that consistent with this congressional attempt, the cftc has been working ruly rule that so-called end users don't get swept up in the clearing definition or in the margin calculations. because i think fundamentally if we follow congressional intense and allow -- intent and allow end users the opportunity to choose rather than being swept up in regulation, they are the enormous men factors of this transparency if financial system has lower risk. investors, consumers and businesses in america also
benefit for the first time from comprehensive oversight of the swap too earlies themselves. the cftc has begun this, we've passed three rules to register these entities to insure that they have better sales practices when they actually transact with the marketplace, particularly with pension funds and municipalities, call it special entities in the law. and we've also completed rules with regard to their own risk management or internal business conduct including firewalls between their trading and research side, and i know you had a panel earlier on the implications of sarbanes-oxley for dodd-frank. but this is one of those reforms of sarbanes-oxley that was picked up from the securities side and moved over to the commodities side that somebody can't have an oil trading research effort sort of influencing the trading desk and vice versa. we're going to build on these by finalizing capital and margin roles and segregation rules for these dealers as well. financial reform further means
something to investors, consumers and businesses in america -- see the theme repeating itself -- through market integrity. reforms will protect end users from fraud, manipulation and other abuses in the swap market as well as the burdens that may arise from excessive speculation. see, markets work best when you actually can have rules of the road and a cop on the beat. and we learned that in the 1930s in the great reforms of that era in the securities and futures world. so market integrity is critical. dodd-frank act closed a significant gap in our authorities to pursue manipulation charges in the marketplace. one by extending it to swaps and, two, by mirroring the securities and exchange commission's abilities to prohibit reckless use of fraud-based, manipulative schemes. and i assume the lawyers in the room know what i just said. i've learned it, but i never went to law school.
[laughter] we also have a new whistleblower authority where people can come in and point out abuses. it also directs us to establishing a regate position limits for -- aggregate positions for both the futures and swaps marketplace for the first time for the energy, agriculture minerals markets. we had positions through 2001, and then they were backed away from. and in october of 2011 we completed the rules so that no single speculator is able to obtain an overly concentrated position in the market. now, full and effective implementation of these financial reforms to best benefit the public does, however, necessitate funding. i can't finish this speech by not mentioning it. but about 700 people at the cftc -- we're smaller with our sister agency with about 4,000 over at the sec to give you a sense of scale -- we're also only 10% greater than we were at our peak in the 1990s.
and in the meantime, the the market we've historically overseen, you know, the corn and wheat futures and the energy futures and the financial futures, that market's grown fivefold, and we've grown 10%. that's efficiency. that's a good use of taxpayer dollars. but now congress has said after this crisis we have to take on the swaps marketplace which is $300 trillion in size. and not do it with anymore people. that's fundamentally what congress has said to us and, unfortunately, um, that's where we stand right now. the cftc will continue working hard and effectively to oversee the futures market and implement reforms for the unregulated swaps market, and this year we will finish the rules of the road for the swaps market in a thoughtful and balanced way. but without sufficient resources, the nation cannot be assured that this agency can oversee the futures and swaps market and that end users -- because fundamentally this benefits all end users and their
consumers and customers -- we can't insure that they get the benefit of transparent markets, the lowering risk and the enhanced market integrity. now, the financial crisis was devastating for investors and consumers and businesses in america, and dodd-frank responded to the crisis with reforms that brings transparency to this market, lowers risks to the markets, brings greater integrity, and financial reform benefits the companies in the real economy that provide the private sector jobs, that 94%. it benefits all of us in this room as taxpayers so that we don't stand behind future bailouts. it benefits everybody that's got a pension fund or a mutual fund and wants that fund to be able to invest in a more transparent marketplace. so i'd say it kind of benefits just about everybody, possibly with the exception of a few people that benefit from keeping this market dark. but most of us really, really do benefit from this reform.
and i think that was the nature of your conference you wanted me to kind of say why i think this matters. so some have raised the concerns that these reforms will raise costs for end users. i say not true. i say end users are the beg beneficiaries here -- big beneficiaries here as long as we get the congressional intent about end users not being caught up in a definition here, a definition there. and let us not forget the far greater cost overall, the eight million jobs that were lost, the millions of homes that were foreclosed upon, the hundreds of thousands of businesses that didn't make their budgets and didn't make their plans. and, um, that's really what reform is all about and why it is so necessary, and with that, i thank you again for inviting me. you can see i kind of care about this stuff, i believe in it, i think it really matters. but i'd be glad to take questions from your participants and then afterwards i'm going to be available for the members of the fourth estate outside.
[applause] >> so chairman gensler has kindly agreed to take questions. are you comfortable calling on folks? >> absolutely. as long as you introduce yourself, tell me your name. >> jim cox. and the -- >> jim, you're with what organization? >> i'm with duke university -- >> i thought so because i've read some of your pieces over the years. >> well, hopefully, you'll still answer my question. [laughter] how sanguine are you that the press has got lots of reports that the result of regulation in these areas will just drive these transactions offshore, but the risk will remain here? you know, i'm not a commodities person, i just wonder what reassurance can you provide me that the press is just wrong on this? >> well, i think this is -- it is true that, um, risk and money knows no geographic border or boundary. it's a click of a mouse or an
algorithmic trading system that sends it around the globe. and that is why we here have been working so closely with europeans and asians on -- and australians on financial reform. but i do think that we can't forget the financial crisis that we had here and that congress moved ahead with the president to say we've got to shine a bright light on these markets. i think that the american public benefits by that. if you transact here in this country, you have a u.s. party, even if it's a cross-border transaction that the u.s. party has to get the benefit of transparency and the benefits of lower risk. now, if a transaction happens, of course, in china, that's another matter. but if it's cross-boarder and it really effects the u.s. people, when we've got to bring that transparency. and i also feel very encouraged by the progress europe is making, canada, japan's already
passed their law, i'm actually flying this weekend for yet another international meeting on monday and tuesday on these marries. so i say we've got to get it right to bring transparency and protect the public here. we're working actively internationally, and can there's been good progress there as well. over here, and then we'll go to the front table. >> chairman gensler, i'm john bookman with e-trade financial, i'm also a member of the adjunct faculty, so i'd like to welcome you back here. >> great, thank you. >> we heard earlier this morning that in the context of legislation drafting that sometimes mistakes can be made if alaskas are taken -- >> not title vii. >> no -- [laughter] that's not where i'm going. if actions are taken too quickly. and i would say, perhaps, the latest example of that would have been possibly the mf global
situation where money was being traded, um, from accounts that contained both mf global's funds and customer monies. and so do you see to try to prevent something like this happening again that you should have a complete segregation of client funds and firm funds? and if not, how do you prevent another mf global from happening again? >> let me just say, i'm not participating in that matter because it's an ongoing investigation that i'm not participating in. but in terms of the overall question that you're asking, congress really with a focus on the crisis gave us one year to complete the implementing rules of these financial reforms. now it's nearly two years since congress passed the law, so, of course, um, we're taking our time. i think we're doing it in a balanced way. we're taking into consideration commenters.
we have 28,000 comment letters and summary legal briefs. some are 300-page-long comment letters. some are one-pagers thankfully. we've had 1300 meetings, and you can go to our web site. we've had 16 round tables. we're coordinating with other regulators around the globe and have had hundreds if not approaching a thousand meetings with other regulators. so we're doing this in a thoughtful, balanced way, but we're also doing it with an eye toward the need, the american public needs this reform. with regard to segregation, that's a core foundation of the futures and swaps world. we tightened up, rightfully tightened up in december where customer funds can be invested. it's something that i felt for these last two years we needed to do. we proposed it back in 2010, and some people said, you know, slow down, cftc, don't tighten the investment of customer funds.
it's not really dodd-frank, and i'm very proud of the staff that recommended it and the commissioners that supported it throughout, and we finalize that in december. we've enhanced the clearinghouses by something called gross margining. we in january finalized rules for the clearinghouse segregation of funds in the swaps marketplace which was a historic move where there's going to be legal segregation down to the clearinghouse that didn't exist earlier and yet to exist in the futures marketplace. so i think we've made some very good progress, but we also just completed two full days of public round tables to hear from the public what else can we do. and to the extent a consensus forms, first amongst the staff and the commissioners, but to the extent that consensus forms, we'll seek public comment on further reforms. up here and then back in the corner. >> art -- [inaudible] gw law. there's some concern that the
big bank dealers who have historically dominated the over-the-counter market are going to try to dominate some of these new central counterparties, clearing facilities. what is the cftc and maybe its sister agency trying to do to kind of stop that kind of domination, hopefully, from occurring? >> well, a thurm of things and, you're right, these swaps markets have been rather concentrated, you know, around something called the g14. you might have thought it was countries, but there's a group of 14 dealers around the globe. and, um, a lot of things to create a more access to the market, democratization of markets. i truly believe what then you bring access to markets and transparency to markets, you get greater competition. i think it's why there's been pushback, why there are a lot of thoughtful comments from the financial community opposed to this. they're being rational actors. you shift the information
advantage to the public by shining a light on a market, you provide equal access -- actually, the statute says there has to be open access to clearinghouses and access also to the trading platforms. so that's what we've done. we finalized rules last october on the open access to the clearinghouses, significantly took down some of the barrier withs, and there were -- barriers and there were, frankly, some -- they sort of were put there in place at one time for risk management purposes, but upon further reflection probably not needed in the same way. ..
>> so those are some of the things we are doing. back in the corner. >> i am a financial sector analyst, and i'm a member of the new york society for analysts and i served on the rights committee, and the socially responsible investment committee. my concern is -- >> congratulations for all that. >> they cut me slack when i wasn't working so they let me do these other things. my concern is related to the power of bank management to in effect proliferate the contract so they conflated their balance sheets with these contracts and their capabilities and effect of this proliferation of contracting which the board utterly failed to themselves to
rein in. so you can game the income statement with the underlies noncash games. quantitative easing. i'm curious what power you would have, or the commission has, to be able to service some we strained from management, especially the interbank. because they're pretty abusive. so the agencies stopped dealing, they have been pretty much been able to get away with what they -- so where can you step in to clean up this mess? >> thank you. they are some of you addressed is addressed in a role that we finalized last week, and other pieces what you raised really around what the securities and exchange commission does with generally accepted accounting principles. but that which we have done is finance reform, we should put in
place rules about risk management, record keeping, reporting and firewalls. and so we completed these rules last week about the integral risk management of the desk, which includes, of course the risk management of the usual think you would hope it would include, interest rate risk and liquidity risk and currency, et cetera. but it also includes supervision. very key rules of the road about responsibilities to supervise the desks and so forth or two of policy and procedures in place for the. and firewalls between the training side and clearing side, and firewalls as earlier mentioned with research. but the second pitcher talking about really relates much more i think to the securities and exchange commission authority, and ultimately the folks in connecticut that set the accounting standards. they are still in connecticut, right? yes. and i guess even the public, the
pcob that you heard from steve harris who was here earlier, because a lot of which are talking about is also accounting. but we will we were able to say is really you have to have supervision and things have to be brought up. the second thing i would say is transparency in markets, the more that is on a transactional basis recorded to the public makes it a wonderful thing for the accountants when they're trying to see what are the values of things on the books. because everybody benefits by the discipline of seeing where the last transaction occurred or to take a very dark market, 300 trillion market, and you move it to something like, i would say like the corporate bond market where you i shall have to report each transaction. that changes a lot of the ability to manage the valuations. >> warren buffett only had like
300 of these instruments. i don't know what the notion of that is come and granted he's a much more cautious investor, to so to speak, but you called in and effect financial weapons of mass destruction where the banks, because there was no regulation, abusively contract, college adding, call it agency said giving, but are you saying that do you think this can serve to restrain some of this? >> i think that transparency is a critical piece of risk management as well. the transparency in markets shines a light inside the company on the value of the transaction that your booking, either that day or last year. and so that is a critical piece of this, transparency helps the end users but also helps in the risk management of these institutions. and i had a lively discussion with mr. buffett last year when he called to tell us to tells
keep doing what we're doing. that was encouraging. >> you mentioned the aspiration that 90% of the contracts will be cleared on clearinghouse is -- >> well, 90%, this is based on facts of international statistics, approximately 90% of the net amount is between financial entities. so about a third of the markets between dealers to dealers, about 55% is between the dealers and financials, and nine or 10% is though end users. not all that 90% will come to clearing because some of it will not be standard enough for the clearinghouse. >> but the spoke derivative exemption, and some people have expressed a concern that that is the loophole that could end up swallowing the role. so my question was, what steps do you think the cftc will take ultimately to get to that 90% go? >> again, it will be less than
90. but there really is a part of the market that is customize and legitimately customized. but whatever portion of those 90 points can come to clearing can be standardized will have to go through public comment as well. i envisioned that this determination of what's called a clear mandate, or what is clear or standard, our hope is that will begin sometime in the spring. the clearinghouse is just in the last two weeks have drawn their first draft submissions to us, the large clearing houses. in february they did. so we are starting to walk through that, though submissions. interest rates swap markets right now is a clean house out of london that clears, i think it is a quarter of a quadrillion, meaning it's like $250 trillion of dealer to dealer swaps. the energy swap markets, the to u.s. clearing houses, and the lending clearinghouse, between
the three of them clear large, significant sums in the marketplace. credit default swaps organizing is over a quarter to half is already clear. that's all voluntarily. but it gives you some evidence as to how clearable this market place is, particularly in interest rates and energy markets, where clearing houses have been set up for about 10 years to do so. >> i will go here and in there, there. >> could you explain under -- >> can you keep your name name? >> jeff. can you explain the cost-benefit analysis regarding the implementation of dodd-frank? in other words, under section 15 a. of the commodities futures act, companies are refusing to supply cftc at times information. in other words, how is the cftc supposed to create let alone implement and then way and distribute for circulation and
cost benefits analysis as required by dodd frank? >> actually just is a all a bit more on this, under the commodities and exchange act, not dodd-frank, we are required to consider cost-benefit, not analysis homages to give you a little of the technical side. but all this matters when people take these things to court. and it will. that's part of our democracy. and have. so, we as commissioners when we do a rule or to consider the costs and benefits along these five factors in this section 15-a, the commodity exchange act, and we do so. when we go out at the promotional stage we ask a lot of questions and we try to seek public input on both a qualitative and quantitative aspects of it. and as jeff said, we get some input, but often we don't get a lot of input. part of that is because
commenters are a little bit hesitant to give away their information. part of it might be that they don't know yet. this is a very new regime. but what we do is we go through the comments, we go to our economic analysis, our chief economist, his office, is involved in each one and has to sign off on each one of these, the policy folks, the lawyers of course had to sign off as well. and the five commissioners william. and i think we're doing exactly what the commodities and exchange act tells us what to do. is to wait it, to consider it, and to seek public comment on it. >> david -- >> which organization are you with? >> worden. >> good, my alma mater. >> do you have a few on the best way to fund the commission?
and if so, are you worried that might tie the agencies interests too closely with that of the industry's? >> so, davis question is how to best fund the agency. number two, would it be good -- were tied too closely to the industry. i think it's critical to be blunt. i look forward to working with congress anyway congress wants to. [laughter] i mean, it really is. to be only 700 person agency, and i know we've a very significant challenge as americans with the budget deficit and the fiscal situation, so to go to congress and ask for literally a 50% increase in the size of the agency from a $200 million agency to a $308 million agency, i do that with deep respect for what congress and the president asked to do, but i think it is a very good investment for the american public.
all one has to do is look at part. that was 700 billion. i mean, i'm not going to safe and well rated swaps market was all, was needed to avert t.a.r.p. but it's a really good, it's like buying insurance to of a well funded cftc. anyway, congress wants to do, if it's the president, both republican and democratic presidents have suggested, all parties to consider a fee, if that's what our oversight committees and the appropriators wanted to work on, i would stand ready to work with them on it, anyway that we could help get funding. if that's not the way i would just keep advocating with the appropriators and the congress for the funds that i think are appropriate for this very expanded mission. [inaudible] >> good to see you again. >> volcker rule timing chairman bernanke said before house and
senate financial committees that it won't be ready by july 21 when the statute provides that it be enforced. i think in his words, obviously, his words won't enforce it if there's no rule. your views, what's your forecast? trading accounts was the home of some of the most illiquid unproblematic financial positions, some of which are in your purview. when do you expect begin enforcing the volcker rule? >> you know, i think it's a collaborative effort between, i think it's six regulators in the department and treasury. we published a rule for comment a little after the others, because we frankly had capacity issues. you know, just moving through all that matters congress asked us to do. so we just publish hours in the last week or two.
at our comment period closes april 16. so if any of you want to, we look forward to that comment on how to protect the public through this means. and i would assume that we would work with the other five regulators, and again in a balanced way to complete what congress laid out. and the challenge is well known. it's prohibit proprietary trading. that banking entities that have some support from the federal deposit insurance corporation, in essence have some form of safety from the federal reserve and the fdic, prohibit proprietary trading, but permit eight or nine other activities, including market-making. and so, it's how to deal with prohibiting proprietary trading, permitting market making, not
having one swallow up the other in the final rule. and i think that's the core challenge that 17,000 comment letters have already come into the bank regulators. is there one other? i see you want to get me out of here. >> i will take one last one. is there anyone else? them ago. i don't want to be standing between you and a golf course or something. >> you are right on time. thank you so much. [applause] >> i was right. the country is in good hands have you as a chairman of the cftc. we were delighted to have you here at george washington law school. as a token of our creation -- >> it is worth less than $20. >> a cheap mug and a watch. >> you are also welcome to come
back anytime. we always appreciate your company here. thank you very much. >> thank you. [applause] >> i will take the coffee mug. does anybody want a clock? >> does anyone want a clock? it looks like under 20 bucks. is that it? are you sure? >> that's over 20 bucks. [laughter] spin we will auction off the clock after lunch. thank you very much. >> just a couple of minutes left in this program. you can see it in its entirety on our website, go to c-span.org. live now from the washington convention center. the american israel public affairs committee's annual policy conference continues. this morning we're expecting remarks from senate homeland security committee chair joseph lieberman, among others. this is live coverage on c-span2.
>> first i want to say thank you to rosie for your leadership over these last two years leading this organization. rosa, i look forward to continuing for the many, many years together here. thank you. i also want to say congratulations to michael and his family. michael. [applause] >> thank you for your leadership, your dedication to i look forward to the next two years of our partnership become even deeper and stronger to work together to strengthen the bonds between the united states and israel. i also want to take a moment here to recognize the close to 2000 students that are here with us this morning. [applause] thank you. thank you for joining us. taking time away from their families and school. and in particular, i want to recognize midshipmen who are here from the u.s. naval academy in annapolis.
[applause] and the cadets that are here from the united states military academy at west point. [applause] thank you. thank you. and finally i want to express what an honor it is to share this podium with our next speaker you will hear later this point, senator joe lieberman. [applause] senator lieberman has been truly one of the giants on behalf of the u.s.-israel relationship for the last 24 years. on every single issue affecting the u.s.-israel relationship, and i just want to say what an honor it is to be here with you this morning.
i m. here -- i am here today to talk about the danger to america and to the world. i am here today to talk about the nation that should they become a nuclear power will present a long-term threat to other oil producing nations in the persian gulf, dominate opec, and drive up the price of oil. a nation that should have become a nuclear power would trigger a race for nuclear weapons that would proliferate across the middle east. imagine if you can syria, saudi arabia, tomorrow's egypt, armed with nuclear weapons. i'm talking about a nation that
should it become a nuclear power could well provide nuclear know-how, and even nuclear devices to international terrorists, hezbollah, hamas, to other radical islamist groups, all operating under the umbrella of one nuclear nation. now, this is not speculation. this nation has publicly declared it is prepared to share this technology with its frien friends. and nor are these dangers distant from our shores, or our cities. because i'm talking about a nation that, should it become a nuclear power, can bring terror here. terrorists armed with nuclear devices, here to our own hemisphere. this nation could share its nuclear technology with
venezuela, nicaragua, bolivia. its friends who are no friends of america. taken together, these many challenges pose a serious danger to america. i'm talking about a nuclear-capable iran. that changes everything. it's not necessary for iran to actually even have the bomb. it demonstrates the on doubt they have crossed the nuclear threshold. iran with simply the capacity to quickly produce a weapon is a risk to peace, and a threat to the world. iran as a threshold nuclear state will strengthen our foes,
and frightened our enemies. we know today that in a way we never even knew before just how close we came to war with the soviet union during the cuban missile crisis. we were seconds away. iran -- at least that soviet leadership which at least operated on a calculus about the severe consequences to them about using the world's most devastating weapon. and there is ample evidence, ample evidence that we cannot count on this regime in iran to use the same calculus. and that is why, as president obama stated yesterday morning, containment, a policy that would allow iran to have a nuclear weapon, is not the answer.
[applause] preventing iran from ever having a nuclear weapon capability, that is the answer. [applause] a nuclear-capable iran means real risks for the united states, her friends and allies. the risk is the greatest, the threat existential, for one country in particular. israel. there's a unique place for israel and iran's ideology. iran says it is ready to pursue normal relations with every state, except israel. which they say should be erased from the map. consider the prediction of the
moderate former iranian president rafsanjani, that israel could be wiped out with just one nuclear weapon while the muslim world, it would survive any such exchange. or consider the diagnosis of the supreme leader khamenei, that israel is a cancer that must be removed. now, someone explain away the statements the other say we should dismiss them as simply the unfortunate examples of this regimes rhetorical style. but iran has gone beyond ideology. to action. pursuing a strategy today of targeting israelis on a global scale. now, when we say israel faces an existential threat, what precisely does that mean?
how does it differ from the threat of nuclear iran poses to other nations? israel is small. it's distance from danger is measured in seconds. israel is strong, but its strength cannot diminish the factors that make it especially vulnerable. these factors, israel's place in iran's ideology, its size, its proximity to danger, all these create a to sql -- a divergence about when iran's actions present a critical danger safety united states or to the west, and when they pose a critical danger to israel.
so even as we act to stop iran, we must be clear and candid about where we are now, that iran has progressed to this very point. we must start with an appreciation of iran's extraordinary efforts to mask its work, tissue from the world just how close it has come to a full nuclear weapons capability. no nation, no nation can gamble its sovereignty and security on perfect knowledge of a clandestine effort by an avowed enemy. [applause] and this is the reality. this is the context in which israel must decide her course of action. if she can put her faith in the hands of anyone, even her
closest ally, america, gore is she must conduct a strike to postpone iran from acquiring a nuclear bomb, israel was created to ensure that the jewish people would never have to put their faith in the hands of others. [applause] let us be clear, let us be clear, israel does not want iran to force her to have to strike. for 20 years, israel has sounded the alarm about the dangers of iran becoming a nuclear power. and in an attempt to avoid military confrontation by anyo anyone, israel has never treated force as a first resort. it has always been and still is the last resort.
but israel does not control the path iran is on. if at some point israel or anyone must act, only iran will be to blame. [applause] but if israel is forced into taking military action that she and the world did their best to avoid, then america must stand with the jewish state. [applause] so, so what do we do?
because despite the danger, despite the hour, there is still time to stop iran without the use of force. and that time is running out quickly. president obama and his administration argue be commended. -- are to be commended. they have more than any other ministration, more than any other country brought on president of pressure to bear on k. ran through the use of fighting economic sanctions. [applause] they have built a broad -- brought the necessary military assets to the gulf and iran's neighbors in order to signal that america has the power to act. in addition, this congress has demonstrated strong bipartisan leadership by passing tough financial sanctions, even on the central bank of iran.
[applause] and that was a key element in iran, and europe's decision to ban iranian oil imports. now, all of these a competence, all of these accomplishments by our leaders have led to important progress. iran's mullahs are under severe russia. iran's economy is in a freefall. iran regime is more isolated than it has ever been. the problem is, the problem is progress is not enough. this is a test, but there are no grades. the only measure is pass or fail. [applause] we know that when the regime in tehran feels frightened, it will stop its nuclear pursuits. history shows us that when this
regime in tehran was scared, it froze its nuclear program. when american soldiers entered iraq in 2003, and tehran feared it would be next, iran stopped work on developing a nuclear weapon. but when the mullahs fear diminished, iran's nuclear scientists return to business as usual, and have been at it ever since. the reality today is that the iranian regime is not frightened enough. [applause] him and so we must increase the pressure's on the mullahs to the point where they fear failure to comply will lead to their downfall. that is why we must bring even more pressure to bear. four tracks are critical.
tough, disciplined diplomacy, truly crippling sanctions, disrupted measures, and establishing a credible threat to use force. [applause] all four, all four are necessary. all four are essential to underscore beyond any doubt that the united states and the west are serious, serious about stopping iran. [applause] and all four, taken together, offer the best chance to avoid a war that no one, not the united states, not israel, seeks. and that is why all u.s. officials, all of our officials must speak with one voice, one
voice so terrain and clearly hears that america is unified in its determination. to prevent a nuclear-capable iran. [applause] our leaders and our allies should always be ready for productive discussions. but for any diplomacy to succe succeed, iran's leaders must demonstrate in advance that they are serious about giving up the quest for nuclear weapons. [applause] we should demand that they again thereby freeze their nuclear program as required by the u.n. security council before talks begin. [applause] the best way, the only way, to
stop iran and avoid the possibility of war is to demonstrate to tehran that we would use every diplomatic economic, political, and if need be, military tool available. [applause] and that is why tomorrow we will go to capitol hill together, as one unified community, to make clear to our leaders that we must ramp up the pressure now through crippling sanctions. together, we will tell them that iran, not our ally, israel, is the problem. [applause] and that all options, all options except containment are on the table. [applause]
to be sure, this is a time of testing. not long ago israeli author and political figure, who is with us here this morning -- [applause] recalled the words of his late father, tommy, a holocaust survivor, a noted israeli leader and a great friend of aipac, in a speech he gave on the occasion of holocaust remembrance day, his words are relevant at this hour. he said, the enlightened world advises us to be compromise in and assume risks for the chances of peace.
yet we ask the enlightened world, we ask all those who preach to us, what will you do if we assume the risk and sacrifice victims and put our trust in you, and then something goes wrong? what if the other side does not act as it is expected to? and instead of pearls at this fire and plagues and poisons and possibly even nuclear weapons, what will you do then? will you ask for forgiveness? will you say we were wrong? will you send us bandages? will you open orphanages for the children who survived? we have prayed for our souls. that nightmare vision, that day
after must never come to pass. [applause] israel can never let that nightmare come. [applause] because israel's promise to those who felt the flames of the holocaust, never again. [applause] we have our own role to play. we must persuade our decision-makers to ratchet up the pressure so that they crippled iran's nuclear ambition. [applause] we must be prepared with any sinner to persuade our leaders
that america must stand with israel. [applause] and as we make our way through these dangerous and difficult days, we, all of us, must remain completely unified. we must recoil from any inclination to make this situation or allow others to make this about parties or politics. this moment -- [applause] this moment can only be about the safety and security of american israel. [applause] it must only be about a world which, but for our leadership and our actions, will be changed forever. that is why we are here. here to ensure that on this date
in history, in a moment of great decision, we set forth the principles and pave the way for america and israel to continue their shared commitment to values and a vision. vision of a world free from the tyranny of violence, hatred and oppression. a world where strength and security, peace and prosperity reign. thank you. [applause] ♪
♪ >> it was very impactful, for me, a child was on the playground but only has 15 seconds to get to shelter. >> we had an opportunity to host a basketball clinic, and what was powerful about it was a basketball was kind of a diversion. it was something that, you, for this moment, we're just going to not think about what's going on around me, what just happened, what could happen tomorrow. we're going to have a great time
playing a game of basketball. >> the kids don't really know what tomorrow is going to look like, and even talking to one of the assistant coaches for the team, just, just showed me the video and the pictures of really almost been hit by a rocket. and for him saying, you know, i watch you play, this is great for you being here. and i thought this is god is talking about me playing. and he almost got hit by rocket. it was hard to process. i am blessed, i am blessed. i will come back here, and you know, live in the kind of world where, we don't have rockets, in terms of rockets being fired upon you five minutes away.
these kids are, you know, tomorrow is not promised, but they are living for today. they are living for today. they are strengthened by that. to me, what inspired me was just their smiles. i mean, to have joy under those circumstances was inspiring in itself. >> ladies and gentlemen, please welcome kathy ireland. ♪ thank you. good morning. it is so exciting to be here at
aipac. yesterday during from president obama and president peres. today, having the opportunity to hear from senator joe lieberman, and aipac's executive director, howard kohr. thank you for those powerful words. [applause] those of you who are my age or older, if you have an awareness of me, my agreement i began my career in fashion back in the last century as a model. [applause] today, i served as a designer, ceo, a mother, a wife, a christian, and a very proud pro-israel american. [applause]
it is humbling to stand before you. and since i've arrived many of you very kindly have asked me why are you here. i am here to speak loudly, to you into the world, with a personal testimony that israel's is not only a jewish value, it is a cherished american value. [applause] christian faith brought our family to israel. our journey there awakened us, as well as friends and loved ones who joined us to the reality that only israel and the
middle east is truly protecting the values of freedom, democracy, and of individual liberty that we and america hold so dear. and that is why i know, as do all of you, that if israel is not safe, no one in this great country of ours is safe. [applause] and that is why it is so important for me, and for all of us, to speak in support of israel, against the vicious attacks that are hurled at this great nation, and weapons and in words. [applause]
i want you, our friends in israel, and israel's detractors, to know that from washington, d.c. the mobile, alabama, from my church in california to churches in juneau, alaska, that americans value israel. [applause] i've had the great privilege of visiting israel, always knowing that i will return. i have met with people of every age and socioeconomic level. i have met with the youth of the nation, young men and women, serving in the israel defense forces who, one day, are strolling the sandy beaches of tel aviv, and the next, targeted by terrorists who seek nothing
less than the eradication of their nation and their lives. i have met with mothers who are in wheelchairs, families who have lost children, people whose bodies are permanently disabled by the ravages of terror. i've stood beside doctors and caregivers in hospitals in israel who give healing to the wounds of terror, and unbelievably, the same doctors and caregivers give care and healing to the very people who attacked them. from hurricane katrina to the devastating earthquake in haiti, from the deadly tsunami in japan
to catastrophes across our globe, consistently israel is among the first responders and. [applause] a despite this unwavering humanity, israel exhibits each and every day, there are still those around the world who are unrelenting in their war of words against the jewish state. and personally, this is something i find extremely disturbing. how often have we heard, why can't israel just give back the land? why can't israel stop the fighting? israel seeks no battle.
america, indeed the world, owes an unbelievable, in fact an unpayable debt to israel. we must honor these courageous people who are yearning for peace, who offer us protection and inspiration. and that is why i so deeply believe that there is no place on earth, please let me repeat, no place on earth, like israel. [applause]
dr. martin luther king, jr. wrote that piece for israel means security. and going to read what he wrote, because i do not want to distort one of his words. dr. king wrote that united states must stand with all our might to protect its right to exist. in israel, he said, i see one of the great outposts of democracy in the world. and a marvelous example of what can be done. how desert land can be transformed into an oasis of brotherhood and democracy. [applause]
dr. king's vision for israel and america is something that we cannot take for granted. it is a vision that needs to live within each of us, the values of freedom, equality and justice. my christian faith opened my eyes to the importance of israel. you don't need to share my faith to know that israel's values cut across every political and state lines. they are values cherished by people of faith, respected by every race, ethnicity, and gender. embraced by people with a true
understanding of humanity. these are american values. [applause] and, friends, i don't stand with israel out of been miners sense of celebrity and entrepreneur designer, or even only because of my christian faith. i stand with israel as an american who sees in israel what i see in our own country, a great people with a strong commitment to the values of freedom, the goal of equality, and then unrelenting pursuit of justice. [applause] israel and america have a shared
vision. it is such an honor to be here with all of you today at the aipac policy conference. the critical and heroic work being done by aipac, and by all of you, and it is amazing to look out and see democrats, republicans, christians and jews, people of every race and background coming together, and you know that at aipac we all have a home. and as incredible as that is, it's not enough. we need more people making a difference. i believe it is the responsibility of every american to stand up, speak out, and do all that we can to make sure that the united states always
stands with the state of israel. [applause] and please no, -- and please no standing with israel in no way implies any anti-arab sentiment. the throne of god is made up of every tongue, tribe and nation. scripture teaches us to the unconditional for ever, covenant, that through you, israel, all the families of the earth will be blessed. [applause] it is my personal promise to
stand with israel for the rest of my life. [applause] i ask you to please join me in that stand, and to please make a promise of your own, to the people of israel. thank you. god bless america. god bless israel. [applause] ♪ >> israel's strategic environment in place for nearly 35 years has changed.
she faces threats today that didn't exist a year or two ago. and so does america. as governments in the region fall, or faced growing opposition, instability and uncertainty grows. but one thing does remain certain, the united states and israel are strategic partners, supported by the american and israeli peoples. these historic times demand action, to further enhance u.s. israel's security cooperation. her ally does intel. help the u.s. as historic a provider. and israel can provide americans key assets to hope in our nation's regional efforts. on tuesday when he to encourage congress to support important legislation just introduced making clear to the world that the u.s. stands ready to ensure israel's ability to defend herself. that we and israel will stand together in the u.n. and beyond. that american israel will grow their cooperation, homeland security, intelligence, and
other important strategic arenas. and that america and israel will combine their efforts to meet new regional challenges. i am david gillette, and this is lobbying in a minute. ♪ >> i consider myself to be really fortunate. i would use the word blessed, to be alive at the time when the state of israel was reestablished. ♪ >> probably my first most powerful memories were in the
early '50s, and a relative from israel came to stay with us for a while, to study here in the united states. perhaps i was eight or nine then, but that's when israel became real, personal to me. i did not go until probably 1978. it was a thrilling visit for me. and as my cousins made israel real to me, this in another way, here i was going back to the land of israel, and i will never forget on the plane going in, those days they used to play -- i just began to sob, you know. unexpectedly, spontaneously. then at that point i'm in my
♪ ♪ [applause] >> thank you. dear friends, thank you so very much. it is a great personal privilege the join you today in this -- to join you today in this largest and i would say most important aipac policy conference ever. thank you very much. [applause] i also want to thank whoever planned the program this morning because -- [laughter] in the thousands of times that i've been called on to speak, i never had a better warm-up act than kathy ireland. [applause] thank you, kathy ireland, and god bless you for all you do. [applause]
now, as many of you know later this week the holiday is celebrated this which we read the book of esther, a story of a miraculous rescue of the jewish people from annihilation, the hand of god is there on every page of the story of the book of esther, but the work is ultimately brought about by the acts of a single, principled, courageous and beautiful woman named hadassa esther. in this week i would be remiss if i didn't introduce to you the beautiful, principled and courageous woman i'm blessed to have as my wife, hadassa esther lieberman. [applause]
so i'm sure you'll agree with me that the best proof of hadassa's courage is that he has lived with me for 29 years. [laughter] okay. for me as you know, this is a special moment. because it's the last time i'll have the honor to stand before you at this conference as a united states senator. but i want to make very clear, next year i'm just believing the senate. -- leaving the senate. i'm not retiring. [applause] and i specific chi want to pledge to you now whatever the next chapter of my life brings s and whenever it takes me -- wherever it takes me, i will continue to stand with you as you have stood with me to fight for the causes that brought us together year after year; a strong america, a strong israel and an unbreakable relationship
between america and israel. [applause] i've been fortunate, to put it mildly, to serve in the united states senate for 24 remarkable years. during which time the world has transformed in ways that defy both prophesy and hajj nation. imagine nation. the fall of the soviet union, the rise of the internet, the 9/11 attacks. in the middle east, we witnessed with a great sense of hope the oslo accords of 1993 whose promise, sadly, has yet to be realized. on the other hand, in 1994 israel and jordan signed a peace treaty which remains today a mutual hi-beneficial -- mutually-beneficial model for the rest of the middle east, israel and arab alike. [applause]
in the 24 years, we've sadly seen two terrorist intifadas, and now in recent times the arab world's historic democratic uprisings. through the ups and downs, israel year after year has grown more and more vibrant, diverse and secure, and the u.s./israel relationship has grown closer and closer. the bond between our two great democracies and our two great peoples is deeper, wider and stronger than ever. finish and that is -- and that is, obviously, because americans and israelis have so much in common from our humanitarian values to our technological innovations. from our system of us have dis, to -- justice, to our systems of defense. from our belief in god to our faith that the bible is the word of god. americans and israelis come
together not in an alliance of convenience, but in a relationship of family. and that is expressed most powerfully in the unprecedented, long-term, bipartisan, pro-israel majority in both houses of congress. [applause] the truth is that the ultimate guarantor of the u.s./israel relationship is each of you. it is you, the american people, who from every corner of our country and every possible demographic divider -- definer take the time to call on your elected leaders to stand with israel. that's why your presence today, as it has been every year, is so important.
and that is why what aipac does every day is so important. i want to say to you that as much as we have accomplished during the last 24 years in the u.s./israel relationship, i must admit that i leave the u.s. senate with two big items of unfinished business. the first is that despite a great deal of work israel still has not been able to achieve the peace with its palestinian neighbors that its people want and deserve and that everyone in the middle east would benefit from. but we're never going to stop working for that peace, ask can one day with god's help -- and one day with god's help, it will come. [applause] my second personal disappointment -- and i feel it personally -- is that the american embassy in israel is still not where it belongs, in the city of jerusalem, the
eternal capital of the jewish state of israel! [applause] but neither you, nor i will ever forget jerusalem. and we will continue to fight for a day when the american flag flies proudly over an american embassy x -- and that day, too, i believe, will come soon. [applause] today the united states and israel face a new and even greater danger as iran arkansass toward a nuclear weapons capability. and that challenge is right hi the focus -- rightly the focus of this conference. do not let anyone tell you that a nuclear-armed iran is justice
reel's problem. -- is just israel's problem. it is not. do not let anyone tell you that you can learn or we can learn to live with a nuclear-armed iran. we cannot. do not let anyone tell you that the problem with iran's nuclear program is what israel may do about it and when. it is not. the problem is what iran is doing with its nuclear program and when. [applause] the iranian nuclear program is a threat to the entire world, but especially to the united states, israel and the arab nations of the hid l east. middle east. if iran is allowed to require a nuclear weapons capability, it will set off a cascade of nuclear proliferation as other countries in the region seek atomic arsenals of their own. if iran is allowed to acquire a
nuclear weapons capability, it will make its terrorist proxies, groups that have already, that already have the blood of thousands and thousands of americans, israelis and arabs on their hands infinitely more dangerous. if iran is allowed to acquire a nuclear weapons capability, it will be able to bring the global economy to its knees. whenever it wants. if you think gas prices are high now in our country, imagine what will happen if iran could back up its threat to close the strait of hormuz with a nuclear weapon. this is a future we cannot atord. it is a future we can and must prevent. and together we will. [applause] it is definitely within our
power to stop iran from achieving a nuclear weapons capability. the question is not whether we can stop them, but whether we will choose to stop them. and that is why together with my colleagues, senators bob casey and lindsey graham and many others, i've introduced a nonpartisan resolution that says when it comes to iran, all options must be on the table except one option, and that is containment. [applause] it won't work. [applause] that's precisely what president obama has said. now it's time for the other end of pennsylvania avenue to say the same thing. with your help this week, we will soon -- and i ask you to bring this up when you visit capitol hill tomorrow -- with your help i'm confident we will soon have many more than a
majority of members of the united states senate, of all parties supporting this resolution. now, let me say that i do not believe that military action could disable iran's nuclear project is unavoidable. that choice is iran's. [applause] and so far though economic sanctions applied have clearly affected the iranian economy, the fact is that they haven't led the fanatics who today run that country to slow up their nuclear weapons program one iota. ms. we also have choice -- [applause] we also have choices to headache. if a nuclear-armed iran is unacceptable, and we all say it is, we must make clear to the
world that we're rared to do whatever is necessary -- we're prepared to do whatever is necessary to prevent the unacceptable. the president has said he doesn't bluff and neither can we in congress. [applause] fact is that there is nothing, in my opinion, more harmful to our chances of stopping iran peacefully than the suspicion that in the end we will give up and let them have nuclear weapons. the iranian regime must hear a message from us, and we must state it loud and clear. either you peacefully negotiate an end to your illicit nuclear activities, or they will be ended for you by military attack. [applause]
it's time for us to make an ironclad pledge which will be heard both by our friends and enemies in the middle east and throughout the world. the united states will prevent iran from acquiring a nuclear weapons capability by peaceful means if we can, but with military force if we absolutely must. has -- [applause] now, some have asked why we continue to say that we must stop iran from getting a nuclear weapons capability rather than saying we aim to stop them from getting nuclear weapons. the answer to that question is direct, and it is very important. the time for action is before
iran has crossed the line of capability to put together a weapon. when all they have to do is combine the components they've developed to give them a nuclear weapon. my friends, if we wait until iran has nuclear weapons, it will obviously be too late. [applause] the threat from iran is more serious than anything faced by the united states and israel during my 24 years this the senate. but if america, israel and our allies stand together, i know we will meet and defeat this threat. the great soviet dissident andre sack love once said a country that does not respect the rights of its citizens will not respect the rights of its neighbor's, end quote. [applause]
for the sake of the people of iran and all of its neighbors, israeli and arab, the days of the despotic regime that now rules iran must be numbered. [applause] and i'm confident they will be because the majority, the vast majority of the iranian people who are, after all, heirs of one of the world's great civilizations reject the despotic and corrupt rule that they have been forced to live under. they want the same freedoms and rights as people everywhere. that's a story that we are seeing across the middle east right now, and it is the reason that the people of syria are fighting courageously as we speak against iran's only ally in the arab world, bashar al assad.
it is why we must do more to help them overthrow bashar's evil dictatorship and end his campaign of slaughter. [applause] we simply, based on our own knowledge of history and a lot of it recent, can no longer stand passively by while people are being murdered wantonly by their own government. we must do more to speed the day when the people of syria and the people of iran will again be free. [applause] let me close now with a few final words of thanks and encouragement to each of you. because, you know, when you come to a conference like this, you step into history.
and you try to influence its course. the history of the jewish state of israel is not brief, although some of its enemies today still want to convince people that it is. israel's history didn't begin in 1948. it began thousands of years before this genesis 12:1 when god called abraham to the land i will show you and promised abraham, i will make you a great nation there. [applause] through the millennia since then, through good times and bad -- some times that were very good and some times that were
very bad -- through times of statehood and times of diaspora, the jewish presence on the land of israel has been continuous. in the late 19th century, theodore hertz l began the modern zionist movement to reestablish the jewish state in the land of israel, and as you know well, i suspect, when people told hert zell he was a foolish dreamer, he told them if you will it, it is no dream. [applause] hertzel and so many after him, jews and christians, willed it and worked for it, fought for it and died for it, and in 1948 the dream did become a reality again.
and now as the expression goes, we're blessed because we're living the dream, aren't we? [applause] yes, we are. [applause] but don't ever take it for granted, and i know in this room you won't. because even divinely-inspired dreams need the work of steadfast men and women here on earth to keep them real and keep them alive. i will say to you standing before this enormous and devoted throng i am full of confidence that in the years ahead and in the generations to come the work that you and i have been privileged to do together will go on, the dream will never die, ask our destiny's call which is for universal justice and peace
your unbelievable dedication to the u.s./israel relationship is essential to strengthening the bonds that bind the united states and the jewish state. i think you would agree that it has been quite a conference so far. [applause] somehow aipac keeps outdoing itself year of year. so if you're curious to see what we have in store next year and you like getting a good deal, you will want to register for next year's conference. same place, same weekend, in fact, march 3-5, 2013. if you sign up by tomorrow at 3 p.m., you can receive a special discount. be sure to visit the quick stop kiosks today and reserve your place for next year's conference when we celebrate 65 years of friendship between the united states and israel. we look forward to seeing you
back here in the evening for the gala. thank you. [applause] ♪ ♪ >> more from this aipac meeting tonight with speeches by senate minority leader mitch mcconnell, house minority leader nancy pelosi, and israeli prime minister benjamin netanyahu. coverage picks up at 9:30 p.m. eastern here on c-span2. and coming up live this afternoon tsa administrator john pistole is here in washington today. he'll be speaking at the national press club. he's expected to talk about the future of aviation security. that'll get under way at 1 p.m. eastern. and both the house and senate are also in session today. the senate gavels in at 2 p.m. eastern for general speeches, no legislative work is on the
board. watch the senate live here on c-span2. and the house gavels in today at 2 p.m. eastern, members will be naming post offices around the nation, and that'll be live on our companion network, c-span. and our road to the white house coverage continues in advance of tomorrow's primaries and caucuses. we have former pennsylvania senator rick santorum. he'll be live campaigning in the ohio, and we will have that beginning at 6:30 p.m. eastern. and as mentioned, super tuesday is tomorrow, arkansas 6th. seven states will be going to the polls; oklahoma, tennessee, georgia, ohio, virginia, vermont and massachusetts. while three states hold caucuses. those would be alaska, idaho and north dakota. keep watching c-span for results and candidate speeches. >> i know in washington it's very popular to want to create a cybersecurity organization to oversee this, and i think that's just folly. the adversaries that we're dealing with today are more
committed, better resourced and becoming more sophisticated. we talk about the advanced persistent threat? i worry about that. >> executives bill conner and robert dixon how to handle the threats to government and business communications networks. "the communicators" tonight at 8 eastern on c-span2. >> last week federal reserve chair ben bernanke called on congress to avoid tax increases and spending cuts set to take effect in the 2013 current law. he testified before the senate banking committee on the prospects of the economy and monetary policy. mr. bernanke repeated his statement in a previous hearing that while economic growth and unemployment have improved faster than expected in recent months, a number of factors such as the housing market continue to lower prospects for a fast recovery. this is about an hour, 40 minutes. >> i call this hearing to order. today i welcome chairman bernanke back to this committee
to deliver the federal reserve's semiannual monetary report to congress. there are reasons to be optimistic about our nation's economic recovery. the u.s. economy has expanded for ten straight quarters, and private sector employment has increased for 23 straight months. employers added 2.1 million jobs last year, the most since 2005. but there are also reasons to be concerned such as the european debt crisis and the continuing drag of the housing market on the broader economy. this committee has paid close attention to these two issues and held numerous hearings. while i remain hopeful that we are moving in the right direction, we must continue to monitor the situation closely. on housing there are a variety
of policy proposals, some that do not require an act of congress, that should be considered to improve the housing market. i want to thank governor duke for her thoughtful testimony on tuesday before this committee and the federal reserve's white paper on options to improve the housing market. an additional challenge, the sharp increase this oil prices, has the potential to impede the economic recovery. americans continue to grapple with higher fuel costs when they fill up their cars or heat their homes. it is important that all markets are closely hon to -- monitored- [inaudible] or supply disruption, and i look forward to hearing the fed's views in how rising oil prices may effect consumer spending and economic growth.
i appreciate all the fed has done to insure continued economic recovery. chairman bernanke, i'll look forward to hearing more from you on the fed's recent actions and possible future actions to protect our economy. congress also has an important role in making sure the economy continues to grow, and more americans continue to find the jobs they need. this week the full senate continues to consider the transportation bill. this bill includes the bipartisan effort of this committee to update our nation's public transit infrastructure and create jobs. i am also hopeful that the senate can find consensus in capital formation initiatives, the topic of another hearing next week before this committee, to promote job creation while protecting investors. with so many americans in search
of work, it's not too late for bipartisan action to create jobs and promote sustainable growth. i'll look forward to your views, chairman bernanke, on these and other steps congress can take to improve our nation's economy. to preserve time for questions, opening statements will be limited to the chief chair and ranking member. however, i would like to remind i colleagues that the record will be open for the next seven days for additional statements and other materials. i now turn to ranking member schell l by. >> thank you -- shelby. >> thank you, mr. chairman. welcome again, mr. chairman. since the federal reserve took unprecedented actions in response to the financial crisis, there's been a growing recognition that the fed needs to become more transparent. there was a time when central bankers met behind closed doors and stubbornly refused to inform the public of that, of their
decisions. those days are clearly over. the public now rightly demands that policymakers not only explain their decisions, but also be accountable for their actions. this is especially true of the federal reserve which thanks to dodd-frank now exercises even greater authority over the american economy and the lives of every american. to its credit, chairman bernanke has long recognized the need to modernize the fed. in his first confirmation hearing for this committee, he stated that he believed making the fed more transparent would, and can i'll quote his words, increase democratic accountability, promote constructive dialogue between policymakers and informed outsiders and reduce uncertainty in financial markets and help anchor the
communicating contradictory signals about its commitment to that inflation target. the fmoc minutes reveal that chairman bernanke indicated that he believed inflation goal would not represent a change in the fmoc's policy. in addition, the fmoc has stated that it believes economic conditions are, quote, likely to warrant exceptionally low levels for the federal funds rate at least through 2014. late 2014. in other words, the fed is signaling to market participants that it expects to continue its near-zero interest rate policy for at least three more years. i believe that begs the question, is the f work mc -- fmoc focused on targeting the inflation goal? the if inflation goal conflicts with keeping interest rates near zero, which target will prevail? in other words, why should
market apartments have confidence that the fed is actually commit today achieving its inflation goal, and be the fed is not serious, how will the fed's credibility suffer when inflation rises above 2%? accordingly today, i hope that chairman bernanke can give the committee more insight into how the fomc's inflation goal will work in practice. i would also like to hear whether he believes congress should hold the fomc accountable for meeting its inflation goal. and while the chairman has taken steps to improve the transparency of fomc, the transparency of the board of golfs appears -- governors appears to be getting worse. a recent "wall street journal" article noted that the board has held 47, yes, 47 separate votes on financial regulations since dodd-frank became law, yet they've hold only two public meetings, mr. chairman. the article noted that there's been a steady reduction in the
number of open meetings by the board since the early '80s when the board had more than 30 open meetings. as a result, the fed is making sweeping financial regulatory policy decisions behind closed doors. this is inconsistent with, mr. chairman, your professed goal of making the fed more transparent. in another troubling development, the fed recently decided to enter into the debate on housing policy. on january the 4th, the fed issued a white paper entitled "the u.s. housing market: current conditions and policy consideration." the stated goal of the paper was not to provide a blueprint, but rather to ute line issues -- outline issues and trade-offs that policymakers might consider. however, subsequent actions by fed officials suggest that the fed has views about the policies congress should enact. just two days after the white paper was released, fed governor
elizabeth -- [inaudible] give a speech in which she effectively asked the gse conservator to ignore his statutory mandate to conserve and preserve assets to the gses. that same day, mr. chairman, new york fed president william dudley gave a speech in this which he argued that it would quote, his words, make sense for fannie and freddie to, quote, routinely reduce principal on delinquent mortgages using taxpayer dollars. these statements would suggest to many that the fed does not, in fact, that the fed did, in fact, have a blueprint there for housing market policy. that blueprint appears to involve using the taxpayer-supported gses as a piggybank. in weighing in on housing policy, certain fed governors have begun to take sides in
which should be a congressional policy debate, i believe. the fed's independence for monetary policy has always been premised on its remaining nonpartisan and not advocating for specific legislative measures. the fed has been and should, i believe, continue to be a useful resource for information and analysis on the housing market. i believe it should not become an active participant in the legislative debate over the future of housing finance. i hope that the fed's recent foray into the housing policy will not become common practice. mr. chairman, i believe went you say that you believe the fed is most effective when it is nonpartisan, transparent and accountable, i believe that's right. i'm interested in hearing from you today, mr. chairman, on how you intend to continue to improve the fed's performance on all three objectives. thank you. >> thank you, senator shelby.
welcome, chairman bernanke. dr. ben bernanke is currently serving his second term as chairman of the board of governors of the federal reserve system. his first term began under president bush in 2006. dr. bernanke was chairman of the council of economic advisers during the bush administration from june 2005 to january 2006. prior, dr. bernanke served as a member of the board of governors of the federal reserve system from 2002 to 2005. chairman bernanke, please, begin your testimony. >> thank you. chairman johnson, ranking member shelby and other members of the committee, i'm pleased to present the federal reserve's semiannual monetary policy report to the congress. i'll begin with a discussion of current economic conditions and the outlook and then turn to monetary policy. the recovery of the u.s. economy continues, but the pace of the
expansion has been uneven and modest by historical standards. after minimal gains in the first half of last year, real gdp increased as a two and a quarter percent annual rate in the second half. the limited information available for 2012 is consistent with growth preceding in coming quarters at a pace close to or somewhat above the pace registered during the second half of last year. we've seen some positive developments in the labor market. private payroll employment has increased by 165,000 jobs per month on average since the middle of last year, and theory 260,000 new private sector jobs were added in january. the job gains in recent months have been relatively widespread across industries. in the public sector, by contrast, layoffs by state and local governments have continued. the unemployment rate hovered around 9% for much of last year but has moved down appreciably since september, reaching 8.3% in january. new claims for unemployment
insurance benefits have also moderated. the decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected given that the economy appears to have been growing during that time frame at or below its longer-term trend. continued improvement in the job market is likely to require stronger growth and final demand in production. not withwith standing the better recent data, the job market remains far from normal. the unemployment rate remains elevated, still near record levels, and the number of persons working part-time for economic reasons is very high. household spending advanced moderately in the second half of last year, boosted by a fourth quarter surge in motor vehicle purchases that was facilitated by an easing of constraints on supply related to the earthquake in japan. however, the fundamentals that support spending continues to be real -- to be weak. access to credit remains restricted for many potential
borrowers. consumer sentiment has rebounded but remains el relatively -- relatively low. in the housing sector, affordability has increased dramatically as a result of the decline in house prices and historically low interest rates on conventional mortgages. unfortunately, many potential buyers lack the down payment and credit history required to qualify for loans. others are reluctant to buy a house now because of concerns about their income, employment prospects and the future path of home prices. on the supply side of the market, about 30% of recent home sales have consisted of foreclosed or distressed properties, and home vacancy rates remain high putting downward pressure on home prices. more positive signs include a pickup in construction in the multifamily sector and recent increases in home builder sentiment. manufacturing production has increased 15% since the trough of the recession and has posted solid gains since the middle of last year, supported by the recovery in motor vehicle supply
chains and ongoing increases in the business investment and exports. real business spending for equipment and software rose at an annual rate of about 12% over the second half of 2011, a bit faster than in the first half of the year. but real export growth, while remaining solid, slowed somewhat over the same period as foreign economic activity decelerated particularly in europe. the members of the board and the presidents of the federal reserve banks recently projected that economic activity in 2012 will expand at or somewhat above the pace registered in the second half of last year. specifically, their projections for growth in real gdp this year provided in conjunction with the january meeting of the fomc, have a central tendency of 2.2 to 2.7%. these forecasts were considerably lower than the projections they made last june. a number of factors have played a role in this reassessment. first, the annual revisions to the national income accounts
released last summer indicated that the recovery had been somewhat slower than previously estimated. in addition, fiscal and financial strains in europe have weighed on financial conditions and global economic growth, and problems in if u.s. housing and mortgage markets have continued to hold down not only construction and related industries, but also household wealth and confidence. looking beyond 2012, fomc participants expect that economic activity will pick up gradually as these headwinds fade, supported by a continuation of the highly accommodative stance for monetary policy. with output growth in 2012 projected to remain close to its longer-run trend, participants did not anticipate further substantial declines in the unemployment rate over the course of this year. ful looking beyond this year, fomc participants expect the unemployment rate to continue to edge down only slowly towards levels consistent with the committee's statutory mandate. in light of the somewhat different signals received
recently from the labor market than from indicators of final demand and production, it will, however, be especially important to evaluate incoming information to assess the underlying pace of the economic recovery. at our january meeting, participants agreed that strains in global financial markets pose significant downside risk to the economic outlook. investors' concerns about fiscal deficits and the levels of government debt in a number of european countries have led to substantial increases in sovereign borrowing costs, stresses in the european banking system and associated reductions in the availability of credit and economic activity in the euro area. to help prevent strains in europe from spilling over to the u.s. economy, the federal reserve in november agreed to extend and modify the terms of its swap lines with other major central banks, and it continues to monitor the european exposures of u.s. financial institutions. a number of constructive policy
actions have been taken in europe including the central bank's program to extend three-year collateralized loans to european financial institutions. most recently, policymakers agreed on a new package of measures for greece which combines official loans for the size of reduction of greek debt held by the private sector. however, critical fiscal and financial challenges remain for the eurozone, the resolution of which will require concerted action on the part of the european authorities. further steps also be required to boost growth and competitiveness in a number of countries. we are in frequent contact with our counterparts in europe and will continue to follow the situation closely. as i discussed in my july testimony, inflation picked up during the early part of 2011. a surge in the prices of oil and other commodities along with supply disruptions associated with the disaster in japan that put upward pressure on motor vehicle prices pushed overall inflation to an annual rate of more than 3% over the first half of last year.
as we had expected, however, these factors proved transitory, and inflation moderated to an annual rate of 1.5% during the second half of the year, close to its average pace in the preceding two years. in the projections made in january, the committee anticipated that over coming quarters inflation will run at or below the 2% level we judge most consistent with our statutory mandate. specifically, the central tendency of participants' forecasts for inflation in 2012 range from 1.4 to the 1.8%, about unchanged from the projections made last june. looking farther ahead, participants expected the subdued level of inflation to persist beyond this year. since these projections were made, gasoline prices have moved up primarily reflecting higher global oil prices, a development that is likely to push up inflation temporarily while reducing consumers' purchasing power. we will continue to monitor energy markets carefully. longer-term inflation expectations as measured by
surveys and financial market indicators appear consistent with the view that inflation will remain subdued. against this backdrop of restrained growth, persistent downside risk to the outlook for real activity and moderating inflation, the committee took several steps to provide additional monetary accommodation during the second half of 2011 and early 2012. these steps included changes to the forward rate guidance included in the committee's postmeeting statements and adjustments to the federal reserve's holdings of treasury and agency securities. the target range for the federal funds rate remains at 0 to one-fourth percent, and the language in the policy statement provides an indication of how long the committee expects that target range to be appropriate. in august the committee clarified the forward guidance language noting that economic conditions including low rates of resource utilization and a subdued outlook for inflation over the medium run were likely to warrant exceptionally low levels for the federal funds
rate at least through the middle of 2013. by providing a longer time horizon that had been previously been expected by the public, the statement tended to put pressure on interest rates. the committee amended the forward guidance further extending the horizon over which it expects economic conditions to warrant exceptionally low levels of the federal funds rate to at least through late 2014. in addition to the adjustments made to the forward guidance, the committee modified it polls regarding the federal reserve's holdings. in september the committee put in place a maturity extension program that combines purchases of longer-term treasury securities with sales of shorter-term treasury securities. the objective of this program is to lengthen the average maturity of our securities holdings without generating a significant change in the size of our balance sheet. removing longer-term securities from the market should put downward pressure on longer-term interest rates and help make
market conditions more supportive of economic growth than they otherwise would have been. to help support conditions in mortgage markets, the committee also decided at its september meeting to reinvest principal received from its holdings of agency mortgage-backed securities rather than continuing to reinvest those proceeds this longer-term treasury securities as had been the practice since august 2010. the committee reviews the size and compositions of its securities holdings regularly, and is prepared to adjust those holdings as appropriate to proo mote a stronger economic recovery in the context of price stability. before concluding, i'd like to say just a few words about the statement of longer-run goals and policy strategy that the fomc issued at the conclusion of its january meeting. the state reaffirms our commitment to our statutory objectives given to us by the congress of price stability and maximum employment. its purpose is to provide additional transparency and increase the effectiveness of monetary policy. the statement does not imply a change in how the committee
conducts policy. transparency's enhanced by providing greater specificity about our objectives. because the inflation rate over the longer run is determined primarily by monetary policy, it is feasible and appropriate for the committee to set a numerical goal for that key variable. the fomc judges that an inflation rate of 2% as measured by the annual change in the price index for personal consumption expenditures is most consistent over the longer run with its statutory mandate. while maximum employment stands on an equal footing with price stability as an objective of monetary policy, the maximum level of employment in the economy is largely determined by nonmonetary factors that effect the structure and dynamics of the labor market. it is, therefore, not feasible for any central bank to specify a fixed goal for the longer-run level of employment. however, the committee can estimate the level of maximum employment and use that estimate to inform policy decisions. in the our most recent projections in january, for example, fomc participants'
estimates of the longer run, normal rate of unemployment had a central tendency of 5.2 to 6.0%. as i noted a moment ago, the level of maximum employment in an economy is subject to change. for instance, it can be affected by shifts in the structure of the economy and by a range of economic policies. if at some stage the committee estimated that the maximum level of employment had increased, for example, we would adjust monetary policy accordingly. the dual objectives of price stability and maximum employment are generally complementary. indeed, at present with the unemployment rate elevated and the inflation outlook subdued, the committee judges sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives. however, in cases where these objectives are not complementary, the committee follows a balances approach in promoting them taking into account the magnitudes of the deviations of inflation and employment from levels judged to be consistent with the dual
mandate as well as the potentially different time horizons over which employment and inflation are projected to return to such levels. thank you and, of course, i'm pleased to take your questions. >> thank you for your testimony. we will now begin the questioning of our witness. will the clerk, please, put five minutes on the clock for each member for their questions. dr. bernanke, what are the reasons for the modest pace of the current expansion? is the economy recovering as you would expect following a major financial crisis, or has the great recession led to any permanent adjustments in the either output or unemployment levels? >> mr. chairman, um, normally when a economy suffers a severe recession, the recovery is comparatively stronger. so a sharp decline tends to to
have a stronger expansion subsequently. however, our economy's been hit by two unusual shocks. one the housing boom and bust, and we know from history that -- and recent fed research supports this -- that housing busts tend to take some time to, to be offset. in particular since housing is an important part of the recovery process in most expansions. additionally, we have had a severe financial dry sis which has -- crisis which has left still many stresses in the banking system and on the financial system, and again research notably by ken rogoff and carmen reinhart has pointed out that historically recoveries following financial crisis also tend to be somewhat slower than they otherwise would be. so having been hit by both of these factors and with housing problems still being important as you noted and as with
financial conditions including some of the stresses coming from europe still being a drag to some extent on economic activity, um, we have had a slower recovery than we otherwise would have anticipated. nevertheless, of course, we have had now growth since mid 2009, and unemployment has come down. but, of course, not, the growth is not as strong, and the improvement in the unemployment rate is not as quick as, obviously, we would like. >> u.s. consumers are deleveraging to reduce high debt levels. credit is still tight for u.s. companies and households, and fiscal policy has begun to tighten. as we consider economic growth in the near and long term, should congress enact drastic spending cuts and balance the budget this year, or would a plan to curb deficits and address structural issues over a
longer time horizon make more sense economically? also, what sectors of our economy could provide sustainable growth over the long term? >> mr. chairman, so, first of all, as senator shelby correctly pointed out, the federal reserve doesn't make recommendations on specific fiscal policy decisions. but in the broad context, um, let me make two points. the first is that, um, as i've said on a number of occasions including in front of this committee, the united states is on a unsustainable fiscal path looking out over the next couple of decades. if we continue along that path, eventually we will face a fiscal and financial crisis that would be very bad for growth and for stability. so, therefore, whatever we do it is very important that we be planning now for a long-term improvement in our situation in terms of long-term fiscal
sustainability. at the same time, i think it is important that we keep in mind that the recovery is not yet complete, unemployment remains high, the rate of growth is modest, and under current law as you know on january 1st of 2013 there will be a major shift in the fiscal position of the united states including, um, the expiration of a number of tax cuts and other tax provisions together with the sequestration and other provisions that would together create a very sharp shift in the fiscal stance of the federal government. um, i think that we could achieve the very desirable long run fiscal consolidation that we definitely need, and we need to do soon, but we can do that in a way that doesn't provide such a major shock to the recovery in the near term. and so i'm sure that congress will be debating the details of this over the next year, um, and
trying to take into account both the need for protecting the recovery at the same time insuring that we do achieve fiscal sustainability in the long term. on your second part of your question, mr. chairman, we are seeing in manufacturing and industrial production in general have been leading the recovery. housing which normally does lead the recovery, of course, is lagging. um, but generally it's, it's -- and automobiles, of course, being one part of manufacturing. but generally it's hard to predict, of course, what sectors will be most, have the greatest growth in the longer term. you asked me earlier in the first question about potential growth. we don't see at this point that the very severe recession has permanently affected the growth potential of the u.s. economy, although, of course, we continue to monitor for productivity
gains and the like. but what concern we do have, of course, is the fact that more than 40% of the unemployed have been unemployed for six months or more. those folks are either leaving the labor force or having their skills eroded, and although we haven't seen much sign of it yet, if that situation persists for much longer, then that will reduce the human capital that is part of our growth process going forward. >> i have been working with my colleagues in the senate to move forward a set of proposals to update securities laws and make it easier for start-ups and small business to raise capital while maintaining critical investor protections. do you generally agree that these types of proposals will help create jobs and strengthen our economic recovery? >> mr. chairman, i don't know the specific proposals. um, but it is certainly true
that start-up companies, companies under five years old, create a very substantial part of the jobs that are added in our economy. and, of course, if there's anything that can be done to encourage start-ups and entrepreneurship whether it's reducing burdensome regulation or providing other kinds of assistance, um, of course, congress makes all the decisions and about the specifics, but, um, again, promoting start-ups is, i think, an important direction for job creation. and in particular the fact that start-ups and job -- and business creation has been quite week during the expansion is one of the reasons that job creation has lagged behind the usual recovery pattern. >> senator shelby. >> thank you. chairman bernanke, at our last hearing right here in the committee on the european debt
crisis i asked the federal reserve witness about the expose your of our largest banks to the european financial system. the feds has yet to respond to our, my request for this information. will you provide the committee with this information regarding the individual expose yours of our largest banks to europe? >> of course, supervisory information has legal protections, but i we'd be happy to work with the committee to provide you with the information -- >> but we need to know what's going on as far as your -- our expose your of our banks to europe. >> yes. we want to make sure that you understand the situation, have all the information you need to make good decisions. i just wanted to add that, um, the sec working with other agencies has provided now some guidance and templates to banks to provide public information on a quarterly basis about their exposures and their hedges. but, yes, we certainly can work with you to help you understand
comfort from that. >> could you explain to the committee, to this member, to the situation as far as credit default swaps and why they're not deemed to -- the default to trigger that action on that? what's going on here? is this a government intervention in market or what is it? >> no, sir. there is a private body, the isda which makes determinations whether a credit event happens. and a default occurred, that's right and in the case of greece which is the relevant issue,
thus far there has been a so-called private sector involvement purpose portedly involvement with the private sector bond holders and there's also been an exchange of bonds by ecb and other government agencies with greece that essentially gives some protection to the ecb for its greek debt holdings. the news this morning, i believe, was that the isda determined that those two events did not constitute a credit default from the activation. however -- >> and why did it not create the dynamic there? why did it not? >> their view is that so far that the negotiations have been voluntary. now, the possibility exists -- the greek government has
retroactively created so-called collective action clauses which it could use in the future to force other private sector investors to take losses even if they haven't agreed to this voluntary deal. in that case the isda could look at that time again but it could say if a default had occurred but a default had not occurred yet. >> let me go into one thing the dodd-frank created a new position a vice chairman of supervision which is subject to senate confirmation. it's almost two years later -- it was two years ago. the president still has not no, i wanted anyone for this position. who's currently fulfilling those duties as vice chairman of supervision at the fed if they're being done? >> they are, of course, being done. the duties are distributed across the governors and the staff but i would say the point person, as you know, is governor
turillo who has testified on regulartary matters. >> do you think that position should be filled, nominated and filled. >> congress created the position, yes i would like to see it filled and i would also like to see the board filled as well. >> and my last question has to do with the balance sheet which is about the fed which is approximately, my understanding, about $2.9 trillion. how are you going to shrink that? i know you're not going to shrink it now. but do you have a plan -- i'm sure you've talked about it. we've talked about it a little bit, at times, but that is a huge balance sheet to start shrinking and probably is not the time to shrink it now. i don't have any information on that. what -- how are you going to do that? >> senator, we have provided on numerous occasions an exit plan
and, for example, the minutes, i think, some time ago we provided an agreement of the committee about how we would proceed. in the very short term, we can both, of course, allow securities to run off which we've been reinvesting them at this point. and we can reduce the impact of the -- those securities on the economy, both through various sterilization measures and by raising the interest rate we pay on reserves to keep those reserves locked up at the fed. over a longer period of time, of course, we're going to have to sell some of the securities and, of course, we will. our goal is to get back to -- it's eventually at the appropriate time, our goal is to get back to a more normal size balance sheet consisting only of treasury securities. >> thank you. >> senator reed? >> thank you very much, mr. chairman. and thank you, chairman bernanke and let me just say i thought that the federal reserve's white paper on housing was very thoughtful, very analytical and
nonproscriptive, which is appropriate. i think also thinking back, such an analytical paper might have been extremely useful to us in 2005, '6 or '7, to alert policymakers to develop into a housing market that proved to be catastrophic. the final point, i think, it is fully consistent with the enhanced responsibilities under the fsoc that the federal reserve must display so all those points i think it was appropriate. one of the issues that was raised in the paper in which you might elaborate on is that -- there are short-term programs that might in the long term produce more returns, enhance value to the government and taxpayers, but if they're not pursued, either if there's an upfront cost, that ironically we could have a further deterioration of the profit -- the profitabilities of these
assets. can you elaborate? >> i would like to quickly comment that senator shelby about the speeches are their own cognizances and they don't representative official fed position and fed members often give their own views. sorry, senator reed. one point that we make is that in a typical negotiation between a borrower and a lender, a modification or some other arrangement like a short sale or a deed in lieu, for example, or other activities like reo to rental are typically taken on a normal economic basis the benefits of the lender and the borrower which makes sense in a free market economy. but in the current situation, i think it's important at least to recognize that the problems in the housing sector, including massive numbers of foreclosures, uncertainty about the number of houses coming on the market, whole neighborhoods with many
empty houses -- all of those things have implications not only for the borrower and the lender but also for the neighborhood, for the community and, of course, for the national economy because the weaknesses in the housing market again as i mentioned earlier are slowing the pace of the recovery and from the federal reserve's point of view are probably muting to some extent the impact of our low interest rate policy because low mortgage rates don't help if people can't get mortgage credit. so some of the benefits of actions to improve conditions in the housing market go beyond just those of the lender and the bauer and accrue to the broader society as well. >> one other point and you might comment upon it, we have several challenges facing us economically, as you've il ill-strayed -- illustrated. reasonably speaking, we have much more ability to influence effectively and correctly housing policy here than international energy prices and
as a result, it would be i think a good investment of our time and effort to do so; is that a fair comment? >> well, i think if there was a goal of the white paper, it was simply to encourage congress to look at these issues, which represent, i think, one of the directions whereby we could be doing something on a policy basis that might help the recovery be stronger. >> let me turn to the issue of the volcker rule which is pending. european governments are urging that their sovereign equities be sort of treated preferentially in the rule even though as i understand, and you might correct me that under the basel rules there's a risk zero risk sovereign -- >> >> yes. >> so the greek -- >> well, the way it's been handled by the european banking authorities at the moment is to
force the banks to write down their sovereign debt and that in turn affects the amount of capital that they can claim. >> and in addition, too, that the level of capital and resulting liquidity for european banks is rather substantial relative to ours in terms of the kind of liquidity ratios they can bear under basel is that also accurate? >> is that slower? >> no, that we can have higher liquidity or much higher ratio to debt to equity? >> oh, i see. at the moment, there's several issues. in principal we're all agreeing to the same set of rules, the basel iii rules but there's at least two questions. one has to do with the fact that the ratio of risk-weighted assets to total assets is lower in europe than the united states. and the, therefore, is are european supervisors in some way
allowing lower risk weights being put on comparable risk assets. the basel committee has a process underweigh that the two continents are operating comparably. the other issue is that the basel rules have not yet been implemented in europe and, of course, in the united states either. there is a european union directive in process which we are looking at carefully. it does not in our view completely -- it's not completely consistent with the basel iii documents but it's not a final document but we want to be sure that the capital rules in europe do adhere to the agreement that we all signed onto. >> just a final quick point, mr. chairman, is that in the context of the vocal rule you are still looking very, very carefully at these differencerentials between the european treatment of their sovereign debt and ultimately the way the volcker rule will treat it? >> well, the issue that the
europeans and the canadians and the japanese have raised is that because there's an exemption for u.s. treasuries but not for foreign sovereigns in the volcker rule, they believe they're being discriminated against and the volcker rule might affect the liquidity and the sovereign debt markets. we take this very seriously hello we are in close discussions with those counterparts and, of course, we'll be looking carefully to see if -- if changes are needed and we'll do what's necessary. >> thank you, mr. chairman. >> senator crapo? >> thank you, mr. chairman. and chairman bernanke i want to follow up on the volcker rule. i read with interest your comments yesterday and frankly candid comments that the regulators will not be ready to issue the rule by the deadline of july, which i think is becoming more and more self-evident. i assume the reason for that is that because you have 17,000 comments, you had the issues that were just raised by senator reed with regard to the reaction
of other markets in the world with what we may do with that rule and the need to reduce a cost benefit analysis it's just likely not to happen by the time we hit the statutory deadline in july; is that correct? >> yes, in addition it's a multi -- it's a multiagency rule and that requires coordination but i do want to say, of course, we will be working as quickly and as effectively as we can to get it done. >> well, i appreciate that. the question i have is -- as i read the statute, there's a deadline in july for the agencies to act, but if the agencies don't act, the rule, whatever it is, goes into effect. and the market participants are understandably, i believe, concerned about what they should do on july 21st if the agencies have not been able to coordinate effectively and promulgate a rule. the question i have to you is, wouldn't it be helpful if congress were to correct that aspect of the statute and make it clear that on july 21st we
are not going to have a volcker rule go into effect that does not have the clarification and cost benefit analysis and fine-tuning that the agencies are now trying to give it? >> well, certainly we certainly don't expect people to obey a rule that doesn't exist. there is a two-year conformance period built into the statute that allows two years from the -- from july of this year before that -- before they have to conform to the rule. and we will certainly make sure that firms have all the time they need to respond. and i think two years will probably be adequate in that respect. >> well, thank you. i'd like to shift during the remainder of my questions to the topic of the question that the chairman asked you about, whether it is time for us to begin more aggressively controlling the spend-out rate in congress' spending habits or whether we need to continue to hold off because of the impact on the economy.
and i believe as i understood your response, you indicated that in january, we're going to see tax relief -- or tax cuts expire and we're going to see the sequestration impact, a number of other things will happen. and i believe your answer was that soon we need to take some action. and i want to pursue that with you a little more, in this context. we've been having this debate in congress now for a number of years. but i'm going to go back to the bowles simpson report which issued its report two years ago. and in that report it was recognized that there needed to be an easing into the aggressive control of spending in washington. and immediately following that, we had the debate over the $800 billion stimulus bill where the argument was made, you know, it's not time to control federal spending yet. we need another year or two before we start getting into the serious control of spending. and between that and now we have basically put about another $5
trillion on the national debt, not to count the trillions of dollars that have been used to help sustain economic activity. now, whether we agree with them or not from the fed's actions and we still see the argument being made that it's not time yet for us to become aggressively engaged in controlling the spending excesses in washington, even though we have over 40 cents of every dollar borrowed today. and the budgets that are being proposed continue that trend for the next decade. i know you don't get heavily engaged in fiscal policy but you've already tiptoed a little bit into those waters and i would like to ask you, which will it be time? i believe it's past time? but when will it be time when it's not time now for us to start aggressively dealing with the fiscal structure of our country on the spending side of the equation. >> just a word on the fed, the fed's purchase of the securities actually reduced the deficit because of the interest that comes back to the treasury.
the two things that are not incompatible. you know, you can moderate the very near term impact at the same time that you make strong and decisive actions to put us on a path -- i mean, you haven't -- you haven't done -- you haven't taken any actions. you haven't passed the laws that will bring us on a glide path in the sustainability over the next decade or so and i would add that -- i think one concern as i mentioned yesterday the 10-year budget window may artificially constrain some of the things that congress should be thinking about because many of the issues that we face in terms of not only entitlements but other issues as well are multidecade issues. and i think you could take strong actions that would be taking place over time. i think about the early '80s social security reform that phased in a whole bunch of things, including the later retirement age which is still happening today, 30 years later. so you could take those actions, lock them in, you could get the
benefit of the confidence there, but it wouldn't have necessarily quite as big an impact as the very big shock that would otherwise occur next january 1st. i'm not saying that you could do it and take serious action, i just think you should balance those objectives. >> thank you. i take it that you're saying we need to adopt a long-term plan to deal with this crisis. >> absolutely. >> and i would just observe that at this point, the budgets that are being proposed simply go the other direction. we still -- other than some of the others like the bowles simpson commission and others we still haven't gotten proposals on the table in congress to deal with that long-term plan and i personally think it's time we get at it. >> senator menendez. >> thank you, mr. chairman. thank you, chairman bernanke, for your service. i read your statement, and i'm just, you know, obviously,
creating jobs is the singular most important issue in our country, for families, for our collective economy when such a large part of our gdp is consumer demand, obviously, without income there isn't the opportunity to make that demand. how would you describe how are the latest programs of quantative easing and operation twists helping us get to a more robust growth? and creating those opportunities. >> well, of course, it's very difficult to -- to figure out exactly how to attribute the progress that we have made to monetary policy to fiscal policy to other sources of growth. but the -- if you look at the record, for example, if you look back at the quantative easing 2 so-called in november of 2010, the concerns at the time were
that it would be highly inflationary, it would hurt the dollar. that it would not have much affect on growth, et cetera, but since november 2010, where we've had since the qe2 and the so-called operation twist, we've had about 2.5 million jobs created. we've seen big gains in stock prices, improvements and credit markets. the dollar is about flat. commodity prices x oil are not much changed. inflation is doing well in the sense that we are looking about 2% inflation rate for this year. so i think, you know, at least -- and one other point, is that in november of 2010, we had some concerns about deflation. and i think we have sort of got rid of those and brought ourselves to a more stable inflation environment as well. so i think, you know, the record is positive, again,
acknowledging you can't necessarily disentangle all the different factors. but, you know, it is a constructive tool. but, obviously, monetary policy cannot do it all. we need to have good policies across-the-board including housing, including fiscal policy and so on. but i think that looking back, i think that those actions played a constructive role. >> well, let me go to that point you just made on one other element, housing as one of them. mr. dudley, who's the president of the federal reserve bank of new york, and a recent speech in my home state of new jersey talked about those bars that are under water and he said without a significant turn journal in home prices and unemployment, a substantial portion of those loans that are deeply under water will end in default unless there's a reduction program.
do you agree with his analysis. >> i think it's a complicated issue. it depends on what your objectives are. in terms of avoiding -- avoiding delinquency, i think a reasonable debate in the legislature about whether reducing principal or reducing payments is more important. so that's -- that's one issue. in terms of issues like mobility, for example, mobility to sell your home and move elsewhere, there are also alternatives in things like deed in lieu and short sales so i think it's a complicated issue. there's certainly issues where principal issues would be constructive and cost-effective in terms of reducing default reserve and improving the economy. but i don't think there's a blanket statement you can make on that. >> well, let me ask you a broader question. right now fannie mae and freddie mac currently own or deal with 60% of the mortgage market in
the country. do you think that their regulator at the fha has been aggressive in using their market power to stabilize the housing market? >> he estimates judgments of the effect of those policies on the balance sheet of the gses and whether they meet the conservatorship requirements and he's made judgments about that. i guess i would say a variety of different tools that could be tried that you could make a mix of different things and that you could be experimentals and the gss are doing that. we're doing the experimental reo to rental, for example. they have done the harp 2 so they've been taking steps in that direction and i think there's a big element here of trying to figure out what works best per dollar of cost and fhfa and the ges we may not all agree on their particular actions but
i think they are trying to some things and we'll see what -- what benefits accrue from them. >> let me make a final note that there's two ways of preserving, you know, the corpus of your interests. one is through foreclosure. the other one is through looking at the whole process of refinancing and where appropriate the private sector has taken about 20% of its portfolio in the banks and said -- make sense to do, you know, reductions in principal. so i just worry that our whole focus seems to be in those entities, preserving the corpus through foreclosure, which at the end of the day has a whole other destabilizing element in the marketplace. >> senator, i would just like to agree with you on that. foreclosure is very costly. not only for the borrower and the lender but for the community and for the country. and what i was discussing was not whether foreclosure is a good thing. i was talking about what are the best ways to address the foreclosure issue? >> thank you, mr. chairman. >> thank you, mr. chairman.
and thank you, mr. chairman, for being here. i know we alternate the house and senate going first. this is sort of a post-game interview but we thank you for being here today. i want to hone in a little bit on the volcker rule since there's been a lot of questions about quantative reasoning and how it helps spenders and savers over the last day and a half. let me just ask you with the volcker rule -- and i think most of us are in a place where we're just trying to make it work now. we understand that it's passed. why were treasuries and mortgage-backed securities excluded from the volcker rule in the first place? it's quite odd that those would be the only two instrument that is those didn't apply to. >> of course, congress -- i assume it had to do with desire to maintain the depth of the liquidity in the treasury market. >> and so by that statement you just made we've taken away the depth of liquidity and all other
instruments and thus we've had an outcry from foreign governments and just middle american companies that realized they're not going to have the depth of liquidity and i know you focus on economic issues. you're a renowned economist. is it something that's good for our country to lose liquidity with those other instruments or would we be better off putting treasuries and mortgage-backed securities on the same basis and maybe moving them into the volcker arrangement? >> there's certainly a tradeoff. there's going to be at least some marginal effect from volcker on markets in principal. there's a market making exemption as you know and we're going to do our best to make the discontinuing -- >> and you think market-making is a good thing for our country and by this regulated entries, by virtue of that statement; is that correct? >> i do. and it's exempted by the volcker rule but, of course, we've got
to draw that line in a way that doesn't inhibit good market-making. >> yeah. you know, i've talked with some of the folks who are advocates for the volcker rule and we've tried to come up with a one-sentence solution to allow appropriate market-making to take place by the regulated entities. and some of the people -- at least the people we've talked to actually want to see the volcker rule used as a way to get to glass-steagall through the back door. by virtue of what you've just said, i think you would believe that not to be a good thing for our country; is that correct? or at least as it relates to market-making? >> well, i haven't been an advocate of glass-steagall because i think if you look back at the crisis, the separation of commercial and investment banking was not particularly helpful. i mean, investment banks, obviously, were big source of the problem by themselves. separately. >> right, right. >> but, again, as i said before there's tradeoffs. the goal of the volcker rule is
to reduce risk-taking by institutions. >> right. >> and we're trying to do that in a way that will permit hedging and market-making. >> well, when you have a rule, you know, that people ascribe like in many ways popcornography, you know it when you see it, it is hard i know to make a rule. and would it be helpful if congress clarified the fact that market-making is a -- is a -- is not intended to be overturned by virtue of the volcker rule, that market-making is a very valid and appropriate process for these regulated entities to be involved in? and do you think that might help, you know, you've had all these comments. you've got all these regulators that are trying to come to a conclusion, each with being pushed by the way by various constituencies by congress and outside. would it be helpful to you if we clarified that we, as a congress, do you believe that market-making should not be negatively impacted by the volcker rule? >> well, senator, of course, the
federal reserve pushed for these exemptions. and i think the statute is clear that market-making is exempt and we want to do our best to make that operational. i understand your intent. i hear your intent. that market-making and hedging should be excluded from proprietary trading or distinguished in proprietary trading. >> so i think we're generally speaking on the same page as it relates to the volcker rule and we don't want it to do damage to the depth of liquidity unnecessarily for lending activities in this country; is that correct? >> that's correct. >> and i think we're on the same page that it's probably a legitimate concern for other sovereign governments like canada, like japan, like other ones to say, look, this is incredibly unfair for the largest economy in the world to place a tremendous bias on liquidity of treasuries and mortgage-backed securities unbelievably but not our own sovereign debt. would you agree that's a little
bit of a problem? >> well, there's an issue -- we're certainly in conversations with our partners there. of course, there is one difference, which is that the primary markets for, say, japanese debt are in japan and, of course, therefore, not broadly affected by the volcker rule. except to the extent that u.s. banks are doing it. >> right. >> i agree we want to make sure we're not doing unnecessary damage to those markets. >> okay. do you agree that zero waiting that we place on sovereign debt, especially, in this world, and especially in light of the fact that we are our own worst enemy in this country and we still have not been able to, as senator crapo was alluding, to deal with our longer term issues with the basel rules that are in place. i mean, should there be a zero risk waiting for treasuries or any other kind of sovereign debt? we've seen some pretty big -- >> well, none of those
securities is completely riskless, that's true. we have in the case of non-u.s. -- we've approached this in various ways. in the case of non-u.s. sovereign debt, as i mentioned before, the europeans have asked the banks to write down the value of that debt so in some sense it's subtracted from capital one for one. and in the united states we have been making banks -- we're not just relying on the capital ratio we're making banks do stress tests and look at their europe holdings and hedges to make sure they are safe and sound so we're not ignoring that by any means. in the case of u.s. treasuries, our assumption is that the biggest source of risk is interest rate rate as opposed to default risk. under default i think the whole financial system would be in enormous trouble. >> right. >> but we do ask banks to stress-test their interest rate risk including their risk of holdings of treasuries and
municipalities and so on. >> mr. chairman, i know you've received some criticism over the housing white paper and i know we had a brief conversation about it and i know you shared those weren't your ideas necessarily. i do that that in your core area, since the feds have been pretty active in giving advice and outside their core areas i would love to see the white paper on the effect of the financial regulation that we just passed on our country and i don't know if that'd be forthcoming but i would just suggest especially since it's in your core area it would be very useful to us as we try to work through these details but thank you for your testimony and thank you, mr. chairman. >> senator akaka. >> chairman bernanke, this is a question which is a follow-up on your discussion with chairman johnson and senator crapo. in your testimony you note there
has been some modestly encouraging data recently including slightly better performance in a labor market, improved consumer sentiment and some increases in manufacturing. but these signs of economic recovery are not necessarily reflected yet in the experiences of all workers and their families in the communities. putting aside a question in the eurozone, what possible setbacks concern you the most with respect to risks or economic recovery? for instance, cutting critical investments too quickly, send the economy back into a slowdown? >> well, let me just say first
that one of the points that i talked about in my remarks there's still a little bit of a contradiction in the labor market and the speed of the overall recovery in terms of growth, in particular, i mentioned that income had been flat for consumers in 2011. the revised data from yesterday actually says it was a little bit better than flat but still less than 1%. so you've still got consumers -- consumption spending growing relatively weekly. you've got fiscal issues that are hanging over our heads. so in order to make this a really sustainable strong recovery we need to have both declines in unemployment and strong growth in demand in production and i think that's something we have to watch very carefully. in terms of the risk to that, i do have to mention europe because i think it's important. another is the oil prices.
we've seen a number of movements up and down in energy prices. to some extent a little bit of the movement in commodity prices is essentially inevitable because if the economy is growing and the world economy is growing, the demand for commodities goes up and that's going to create some tendency towards higher commodity prices but when you have shocks to commodity prices arising from geo politic geopolitical rises they are bad for the households and the broader economy. housing, i think, remains a very difficult area. we're hoping for price stabilization. we think once people have gotten a sense that the housing markets will stabilize, they will be much more willing to buy and the banks will be more willing to lend but right now there's still uncertainty about, you know, where the housing market is going which i think is troubling. and, i guess, finally i would mention fiscal policy which both in the short term, in terms of the uncertainty about where
fiscal policy is going to go over the next year and in the long term, in terms of whether or not congress and the administration will bring -- work together to have a sustainable fiscal path. i think both of those things are creating some uncertainty and concern that will pose some risk to the economy. so there are a number of different things. but overall, of course, there has been some good news and, of course, that's welcomed. >> thank you, for that response, chairman bernanke. as you know, i'm most concerned of the well-being of consumers. in the current economic climate, consumers are confronted with difficult financial decisions. and this is the case in hawaii where many homeowners face possible foreclosure. and the average credit card debt of a resident is the second
highest in the country. we know by saving, individuals can help protect themselves during economic downturns. and unforeseen life events. we also know our slow economic recovery is partially due to low consumption of consumer spending. my question to you relates at the intersection of these two factors. how can we continue our efforts to promote economic recovery? and at the same time, encourage responsible consumer behavior and financial decision-making? >> well, that's a very good question. so part of the problem now is
that the demand -- the total demand in the economy is not adequate to fully utilize the resources of the economy. and that's why we talk about the need for greater consumer spending and greater investment and so on. of course, we want consumers to be responsible as well and they have, in fact, raised their savings rates and have reduced their leverage and all that is positive. i think there are two answers to your question, one is that demand comes from places other than consumer spending and it can come from capital investment, for example. it can come from net exports. those are some areas where unambiguously higher investment creates more capital, more potential growth in the future, greater exports reduces our trade deficit, increases our foreign earnings, makes us more competitive internationally. so those are alternatives to consumer spending to provide growth but then there's also a bit of a paradox that consumer spending collectively if it
>> thank you very much, mr. chairman. >> senator? >> you've mentioned several times the need for us to have a plan for a sustainable fiscal policy. would a plan that balanced our federal budget within a 10-year window -- would that be what you consider a reasonable transition towards good fiscal policy? >> i would go for -- at a minimum, i would aim for, in the next 10 to 15 years -- i would aim for eliminating the so-called primary deficit that is everything except interest payments because once you eliminate the primary deficits so the current spending and current revenues are equal, that means that the ratio of your debt to your gdp will stabilize. and then as you go beyond that, you bring -- start to bring the debt to gdp ratio down.
>> right. >> you mentioned 10 years, the other thing as i mentioned earlier is, of course, that many of the things that are going to be problems are kicking in after 10 years so i hope congress will take at least a longer term horizon than that. >> in my conversations with some of your governors and some of the central bankers around the world, there seems to be a broad consensus that there's not the political will here, europe, and many other places to actually get control of fiscal policy and that much of our monetary policy here and around the world is really driven by trying to cleaning up the mess that policymakers make and you may not want to comment on that. quantative easing is dealing with the tremendous debt we've created as policymakers. and what we see in europe happening today, again, dealing with debt but from a monetary
policy rather than a fiscal policy. my concern now -- and i know you meet with central bankers all over the world regularly. and as i see what appears to be coordinated increase in money supplies here, europe, and other places, it may not be formal coordination, i don't know but there appears an effort to keep relative values of currencies the same as increase our monetary supply. others are doing it. and i would just love to have some insight beyond just the individual policies here as to what-degree you feel like you can be honest with us as the ones who primarily create the problems? is it at least within the -- is it true that a lot of monetary policies is now driven by irresponsible fiscal policy from
policymakers? and is there an effort for central banks around the world to work together to deal with that? >> i would say no to both questions. our monetary is aimed at dual mandate. we're trying to set monetary policy at a setting that will help the economy recover in a context of price stability. i think it's interesting that other countries are following, you know, our basic approach. it's not because we have coordinated it in any way. it's because they face similar situations. weak recoveries, low inflation, and the fact that interest rates are close to zero and so some of these quantative easing type policies are the main alternative once you've got interest rates close to zero. so, no, we're not -- this is not an attempt to cover up or clean up fiscal policy. on the other hand, i think, you know, the concerns that people express both about the united states and other countries about the political will and the
ability of the political system to deliver better fiscal results over the long term i think that's an issue that a lot of people are concerned about. i've noted in previous indications that the s&p downgraded the u.s. treasuries last august was not because of the size of the debt but because they took the view that our political system was not, you know, adequately progressing on making long-term sustainable fiscal plans. i hope we prove them wrong. i hope this january 1st event if so many things if left unchanged will be happening that i think will be net contractionary. i hope that will be sort of a trigger point to sort of force congress to say, well, how are we going to solve this problem and so i, of course -- i realize how difficult it is politically but i'd encourage you to make every effort to help restore fiscal sustainability in the united states.
>> well, my concern is -- i really do believe, obviously, we wouldn't have $16 trillion in debt going on 25 or whatever the projections are if we had not been irresponsible as policymakers over many years. and i'm not blaming that on any president or party. but it's clearly a problem. but as has been pointed out by the "wall street journal" today and other articles in financial magazines that the loose monetary policy is compounding the potential problems in the future. and i think as senator shelby talked about, the need for transparency, the need to understand where we're headed with this is pretty important to us as policymakers. first for you to be brutally honest and maybe even more than you've been today, that we're on an unsustainable path. it hurts me to hear you say 10 or 20 years we need to bring it
under control when the analysis i've seen of worldwide available credit suggest that a 5-year window may be tough for us on our current pace as far as borrowing the money. but we seem to have a compounding and growing problem and not a sense of urgency that one would expect given where we are from a political side and now a monetary system around the world. it seems to be potentially making that much worse. i'll just let you comment and i'll yield back. >> well, i would only say that i don't mean no action should be taken for 10 or 20 years. i mean, the plan needs to be a long-run plan because our problems are long-run problems and looking only at 2013 is not going to be helpful. you need to look at the whole horizon. >> thank you, mr. chairman. and thank you, mr. chairman for being here today. i wanted to focus my question on the economy with you since you
actually know what you're talking about. but before i do that i wanted to go back to an answer that you said letter on interest rates, you thought the risk of default was not a serious one. i mean, obviously it would be catastrophic if it happened. but that the risk that you're worrying about is interest rate risk for our financial institution of the economy. could you talk a little bit more about that? what would cause that interest rate risk and what the effects would be of a more northerlized interest rate than the one we have today? >> well -- >> which is at a historic low? >> right, short-term and long-term interest rates are quite low. you know, our current expectation, a we've said in our statement that the short run rate will stay low for a good bit more time. but eventually at some point, the economy will strengthen. inflation may begin to rise and the fed will have to begin to raise short-term interest rates.
at the same time, stronger economic conditions here and globally will cause longer term rates to begin to rise. and that's a good thing. that's a normal healthy thing as the economy returns to normal. but if you have, you know, of course, depending on your -- how your portfolio is structured, you could have the risk of losing money on holdings of bonds. and we just want to make sure that banks understand, you know, their risks and that they are well protected and hedged against whatever the course the interest rates may take in the future. i mean, eventually they will begin to rise. we just don't know when. >> senator akaka asked -- made the point earlier that we've seen some economic growth but it hasn't yet hit home in many ways. and i have a chart -- it's not useful for this because it's so
small. but the -- but i'm -- i'll carve it in the air for you, which is the top line is gdp growth. and what we see is that our gdp is actually higher than it was before we went into this recession which surprises a lot of people when they hear that. our economic outputs is higher than when the recession started. it's gone up since the early '90s. productivity has risen mightily over that same period of time because i think of our response from competition from abroad and the use of technology and then the recession itself which drove the productivity into straight up because firms were trying to how to get through with fewer people. as you observed median family income has actually fallen over the decade and we're producing that economic output with 23 or 24 million people that are either unemployed or underemployed in this economy. so we're in a sense stuck with a gap of economic output and productivity here and wages and jobs here.
as a learned economist, can you help me think about the kinds of things that would begin to lift that median income curve in the right direction, the job curve in the right direction? and i would encourage you to think broadly about that, so education, whatever you think would help because -- unlike the political stuff we're all talking about in washington that actually doesn't make any sense to people at home, that's the issue that they're confronting is what i just described. >> well, let's not belittle the impact of getting back to full employment. that would obviously be very helpful. and it's what the fed is trying to do with our monetary policy. but more generally, there's a couple of interesting things. one is that the profits share of gdp is unusually high. the share of income going to wage earners is lower than normal. and that's a bit of a puzzle it may have to do with globalization. it may have to do with the fact
that a lot of profits are earned overseas rather than domestically and so on. so that's one question. but i think, you know, more generally, there's a whole raft of issues associated with globalization including trade competition, including the fact that low skilled workers are now effectively competing with low skilled workers around the world. the advent in new technologies provides a lot of benefits with people with greater education and greater training and creates discrepancies between them and with people with less training and education. so from that, you know, there's not a lot of good answers but -- but certainly the most basic thing is training in skills because those are highly rewarded in our society still. but the low skilled workers are effectively competing with low skilled workers globally and it's very difficult for them to earn a high income.
>> i'm out of time, mr. chairman. i realize that. i just would say the worst the unemployment got with a college degree was 4.5%. and there's a lot i think that we can learn from that. i'll submit my other questions to the record. thank you for being here. >> thank you. >> thank you, mr. chairman. and thank you, mr. chairman, for being here. i'm concerned about some of the negatives which could clearly grow over time about the zero interest rate policy. what would you consider the lift of present or potential negatives and how do you go about sort of monitoring those to always determine whether this continues to make sense in your mind? >> well, a number of issues have been raised. one that's often raised is the return to savers, with low interest rates, and not penalize savers. we're aware of that.
and we take that into account in our discussions but as i mentioned yesterday, something of total household wealth -- something only less than 10% according to survey consumer finances is in fixed -- fixed income instruments like cds or bonds and so on. most household wealth is in other forms, equity, small business ownership, real estate, et cetera. and our efforts to strengthen the economy will increase the returns and value of those assets and so on net, our activities are raising household wealth overall even if they are reducing the interest rate you can receive on fixed income assets and, of course, keeping inflation low also helps in that respect. second issue we hear a lot about is pension and insurance. you know, low interest rates increase the contributions that those companies have to make. again, we've had many
conversations with those folks about these issues. i would say that it's a serious issue, one that we look at. there are again counterveiling issues. if you look at compensation to workers which includes pension contributors, it remains low, 2% a year and growing. these pension contributions are significant but not massive and on the other side of the balance sheet, of course, pension funds insurance companies have to invest in the economy and once again, a stronger economy produces higher returns in equity markets, real estate markets and the like. the third issue which is very tricky has to do with possibly creating financial bubbles of various kinds. people have different views about that. our view is basically that the first line of defense against bubbles should be what's called macro-prudential supervision, you know, there should be supervisory approaches looking at what's happening in the system and making sure financial institutions are as strong as
possible through capital, for example, and we have greatly upgraded our ability to monitor the financial system since the crisis and we are, you know -- both trying to identify potential problems but also making sure the institutions are sufficiently strong that if there is a problem, that they'll be able to withstand it. if those things don't seem to be working then we prepared i think to take that into account in monetary policy but those are some issues and we are aware of them. >> one thing that might have been first on my list is commodity prices. >> uh-huh. >> a weak dollar pushing investment toward commodities, pushing up commodity prices and, of course, now the most obvious example is gasoline prices. briefly, how would you analyze that and when does that start becoming such a negative that you rethink this? >> so i think the two ways in which low interest rate policies realistically would affect commodity prices first would be through weakening the dollar. but the dollar has been pretty stable. it really has not moved much since, for example, november
2010 when we introduced qe2. the second is by creating growth, both here and perhaps to some extent internationally higher growth increases demand for raising prices. that's kind of inevitable. if you want to have a growing economy that's going to put more pressure on oil prices and so on. so those two things i think have not been a big problem. i think particularly -- if you look at commodities, the one commodity that has been particularly troublesome has been oil. and currently -- i mean, it's quite obvious there are a number of factors that's affecting the supply of oil and concerns about iran and supply issues in africa and so on that are contributing to that increase. >> most of the quantative easing announcements have more or less coincided with increases in oil prices. are you saying that's largely a coincidence or not? >> no, it's not entirely a coincidence. first of all, if you look over
longer periods, it's not quite as close a correlation as you might think. but i think part of the reason, again, that there is a coincidence is because to the extent that -- the extent that monetary policy is structured in a way to increase growth expectations, that feeds into commodity prices through the demand channel so that is one link that i do agree exists. >> and if i can just wrap up, mr. chairman, at what point particularly with regard to oil -- at what point would that factor driving up prices be a sufficient negative in terms of economic growth that you would pause in terms of this 2014, zero interest rate policy? >> well, we'll always keep looking at it but our analysis suggests that the other benefits of low interest rates through a whole range of asset prices, through increased consumption of investment spending and so on,
outweighs reasonable estimates of the effects of that on commodity prices in terms of growth. and, again, i think the reason we've seen these sharp movements has more to do with international situation than with u.s. monetary policy but, obviously, it is -- it is a negative. and something we want to keep monitoring. >> thank you, mr. chairman. >> chairman bernanke, i would like to thank you for your testimony today. but there's a vote going on. and which requires my attention and i'll turn the gavel over to senator schumer for your last few questions. >> well, i'd like to recognize senator schumer to ask five minutes of questions. thank you, mr. chairman. [laughter] >> first question is about the highway bill, the surface
transportation bill that's on the floor. it'll create, according to its sponsors -- create or save 2 million jobs, has broad bipartisan support, apta, the public transportation association estimates for every billion dollars, the federal government -- federal investments in highways creates 36,000 jobs. what impact would passing a long-term transportation reauthorization legislation have on the pace of economic growth? >> i don't know enough about the details of that bill to give you any kind of estimate. i just would like to make one observation, which is the jobs part is important. that's part of helping the recovery, but i think when you think about long-term infrastructure investments, you also want to think about whether these are good investments in terms of the returns. >> right. >> president eisenhower's investment in the -- as you know, in the interstate system produced tremendous dividends in tes